241

How Do We Measure Economic Freedom? See page 471 for an explanation of the methodology

or visit the Index Web site at heritage.org/index.2012 data unless otherwise noted.Data compiled as of September 2013.

Quick FactsPopulation: 244.5 millionGDP (PPP): $1.2 trillion6.2% growth in 20125-year compound annual growth 5.9%$4,977 per capitaUnemployment: 6.2%Inflation (CPI): 4.3%FDI Inflow: $19.9 billionPublic Debt: 24.0% of GDP

Economic Freedom Score

Least Mostfree free

5025 75

0 100

0 20 40 60 80 100

Country Comparisons

Freedom Trend

Country

WorldAverage

RegionalAverage

FreeEconomies

2010 2011 2012 20142013

54

55

56

57

58

59

60

58.5

60.3

58.5

84.1

58.5

Indonesia’s economic freedom score is 58.5, making its economy the 100th freest in the 2014 Index. Its score is 1.6

points better than last year due to notable improvements in business freedom, investment freedom, and financial free-dom that offset small declines in labor freedom and freedom from corruption. Indonesia is ranked 21st out of 42 countries in the Asia–Pacific region, and its overall score is the same as the regional average but below the world average.

Over the 20-year history of the Index, Indonesia has advanced its economic freedom score by about 4 points. This modest overall score increase has been relatively broad-based, facili-tated by improvements in six of the 10 economic freedoms including trade freedom, freedom from corruption, and fiscal freedom, each of which gained 10 points or more.

Nonetheless, the Indonesian economy continues to be con-sidered “mostly unfree” due to the lack of progress in other critical areas of economic freedom. Indonesia has lagged in promoting the effective rule of law. The judicial system remains vulnerable to political interference, and property rights are not strongly protected. Despite some progress, lin-gering corruption continues to undermine enforcement of the rule of law and hampers the realization of Indonesia’s full growth potential.

BACKGROUND: Indonesia is the world’s most populous Mus-lim-majority democracy. Since 1998, when long-standing authoritarian ruler General Suharto stepped down, Indone-sia’s nearly 250 million people have enjoyed a widening range of political freedoms, and participation in the political pro-cess is high. President Susilo Bambang Yudhoyono has tried to address corruption and encourage much-needed foreign investment, but the weak rule of law remains a major impedi-ment to attracting capital. As a member of the G-20 and a driv-ing force within the Association of Southeast Asian Nations, Indonesia plays a growing role at the multilateral level. The increasingly modern and diversified economy has recovered from the global recession.

World Rank: 100 Regional Rank: 21

INDONESIA

242 2014 Index of Economic Freedom

Property RightsFreedom from

Corruption

Fiscal FreedomGovernment

Spending

Business FreedomLabor FreedomMonetary Freedom

Trade FreedomInvestment FreedomFinancial Freedom

Business FreedomLabor Freedom

Monetary Freedom

REGULATORY EFFICIENCY

OPENMARKETS

Trade FreedomInvestment Freedom

Financial Freedom

GOVERNMENT SIZE

Fiscal FreedomGovernment Spending

RULE OF LAW

Property RightsFreedom from Corruption

0 20 40 60 80 100

0 20 40 60 80 100

0 20 40 60 80 100

0 20 40 60 80 100

Country World Average Rank Change1–Year

Score

RULE OF LAW GOVERNMENTSIZE

REGULATORY EFFICIENCY OPEN MARKETS

–20.0+18.0

+10.2+0.1

–0.2–1.3+5.6

+29.8–10.0+10.0

93rd118th

62nd13th

139th146th78th

102nd132nd

41st

30.028.0

83.489.8

54.847.876.4

74.840.060.0

0–2.0

0+0.6

+4.6–3.0+0.9

–0.2+5.0

+10.0

Long-Term Score Change (since 1995)

THE TEN ECONOMIC FREEDOMS

Corruption remains endemic. In 2013, the chief oil-and-gas regulator was arrested on corrup-tion charges. In 2012, there were several high-profile convictions for bribery and money laun-dering. The judiciary has demonstrated its independence in some cases, but the court system remains plagued by corruption and other weaknesses. Property rights are generally respected, but enforcement is inefficient and uneven.

Despite some progress, overall regulatory efficiency is weak. Launching a business takes more than a month on average, and licensing requirements cost slightly less than the level of aver-age annual income. Regulations concerning the creation and termination of employment rela-tionships are relatively costly. In June 2013, the legislature voted to reduce costly government subsidies for gasoline and diesel fuel.

Indonesia’s average tariff rate is only 2.6 percent, but import licensing and quotas further restrict trade. Foreign investment in several sectors of the economy requires government approval. The financial sector remains stable, and a Financial Services Authority has been formed to improve regulatory efficiency. The government has allowed more foreign involve-ment in the financial sector, although limits remain.

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 (VAT) and a property tax. The overall tax burden is 11.8 percent of gross domestic income. Public spending is 19 percent of GDP, and public debt has fallen to 24 percent of gross domestic output. The government has raised subsidized fuel prices to help narrow fiscal shortfalls.

INDONESIA (continued)