INDONESIA

Economic Freedom Score

25

World Rank:

99

Regional Rank:

21

Least
free 0

ndonesia has undertaken various reforms to address

IRecent
structural weaknesses and improve competitiveness.
reform measures have put greater emphasis on

50

75
Most

100 free

59.4

Freedom Trend
61

improving regulatory efficiency, enhancing regional competitiveness, and creating a more vibrant private sector
by modernizing the financial sector. In January 2015, the
subsidy for gasoline was eliminated.
ECONOMIC FREEDOM SNAPSHOT
2016 Economic Freedom Score: 59.4 (up 1.3 points)
Economic Freedom Status: Mostly Unfree
Global Ranking: 99th
Regional Ranking: 21st in the AsiaPacific Region
Notable Successes: Trade Freedom and Monetary Freedom
Concerns: Property Rights, Corruption, and Labor Freedom
Overall Score Change Since 2012: +3

Despite apparent progress, Indonesias growth potential

remains fragile and hampered by inefficient legal and
investment regimes. Political interference in the private
economy discourages dynamic economic expansion, and
the majority of Indonesias workforce is employed in the
informal sector. Pervasive corruption exacerbated by a
weak judicial system adds to business risk.
BACKGROUND: Indonesia is the worlds most populous
Muslim-majority democracy. Since 1998, when long-serving
authoritarian ruler General Suharto stepped down, Indonesias 250 million people have enjoyed a widening range of
political freedoms, and participation in the political process
is high. Joko Widodo, former businessman and governor of
Jakarta, won a tight race for the presidency in 2014, pledging
to end corruption and promote economic reform. Weak rule
of law remains a major impediment to attracting capital. As a
member of the G20 and a driving force within the Association
of Southeast Asian Nations, Indonesia plays a growing role at
the multilateral level. Its increasingly modern and diversified
economy has recovered from the 2009 global recession.

How Do We Measure Economic Freedom?

See page 467 for an explanation of the methodology

or visit the Index Web site at heritage.org/index.

60
59
58
57
56
55

2012

2013

2014

2015

2016

Country Comparisons
Country

59.4

World
Average

60.7

Regional
Average

59.0

Free
Economies

83.9
0

20

40

60

80

100

Quick Facts
Population: 251.5 million
GDP (PPP): $2.7 trillion
5.0% growth in 2014
5-year compound annual growth 5.8%
$10,641 per capita
Unemployment: 6.2%
Inflation (CPI): 6.4%
FDI Inflow: $22.6 billion
Public Debt: 25.0% of GDP
2014 data unless otherwise noted.
Data compiled as of September 2015.

237

INDONESIA (continued)
THE TEN ECONOMIC FREEDOMS
Score

RULE OF
LAW

Property Rights
Freedom from Corruption

Country

World Average

30.0
34.0
0

20

40

60

80

Rank

1Year
Change

92nd
109th

0
+2.0

100

Corruption among civil servants and elected officials remains pervasive and inhibits foreign
direct investment. In January 2015, police responded to a government investigation of corruption in law-enforcement agencies by arresting the deputy chief of the Anti-Corruption Commission. The judiciary has demonstrated its independence in some cases. Property rights are
generally respected, but enforcement is inefficient and uneven.
Fiscal Freedom 83.4
GOVERNMENT
Government Spending 89.0
SIZE

61st
21st
0

20

40

60

80

+0.1
+0.7

100

The top individual income tax rate is 30 percent, and the top corporate tax rate is 25 percent.
Other taxes include a value-added tax and a property tax. The overall tax burden equals 11.8
percent of total domestic income. Government spending amounts to 19.1 percent of GDP, and
the budget deficit is below 2 percent of GDP. Public debt still equals about 25 percent of total
annual domestic output.

REGULATORY
EFFICIENCY

Business Freedom
Labor Freedom
Monetary Freedom

54.0
49.3
74.3

141st
138th
117th
0

20

40

60

80

+4.7
+0.6
0.6

100

Overall regulatory efficiency is weak, and completing licensing requirements can be costly.
Regulations concerning the creation and termination of employment are rigid, undermining
the development of a dynamic labor market. The government responded to falling oil prices in
late 2014 by lowering fuel subsidies, removing distortions in the market but keeping consumer
price inflation artificially elevated.

OPEN
MARKETS

Trade Freedom
Investment Freedom
Financial Freedom

80.4
40.0
60.0

75th
132nd
38th
0

20

40

60

80

+5.6
0
0

100

Indonesias average tariff rate is 2.3 percent. Non-tariff barriers, including licensing and quotas,
further distort trade. Numerous state-owned enterprises distort the economy. Foreign investment in several sectors of the economy is capped. The financial sector remains stable, and a
Financial Services Authority has been formed with the stated goal of improving regulatory
efficiency in the sector.

Long-Term Score Change (since 1995)

RULE OF LAW
Property Rights
Freedom from
Corruption

238

20.0
+24.0

GOVERNMENT
SIZE
Fiscal Freedom
Government
Spending

+10.3
0.7

REGULATORY
EFFICIENCY
Business Freedom
Labor Freedom
Monetary Freedom

2016 Index of Economic Freedom

OPEN MARKETS
1.0
+0.2
+3.4

Trade Freedom
+35.4
Investment Freedom 10.0
Financial Freedom +10.0