my country report indonesia

7/30/2019 My Country Report Indonesia

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Institute for Integrated Learning in Management

Graduate School of Management.

Project on

Country Report of INDONESIA

SUBMITTED TO SUBMITTED BY

PROF. Raj kishan Nair Amit Singh (1014)

Bashistha Sharma(1031)

Sachin Kumar (1047)

Group: - 13 sec: - A


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INDEX

1. Overview of INDONESIA

History Geographical Condition

Demographic Condition

Relation with International

Organization

Political condition

SACHIN KUMAR

2.

Economic Situation of theCountry

Gdp (last 5 years)

Economic Growth

Economic liquidity And Payment

System

Government Policy

Natural Resources. Export& Import

AMIT SINGH

3. Analysis of Business and Businessopportunities existing in the country

FDI

Trade Policy

Monetary Policy Fiscal Policy

Doing Business Projects

Bashistha Sharma

4. Conclusion


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Overview of Indonesia

History:

Indonesia is the worlds fourth most populous country .it is situated in south east part

of Asia.

First Dutch people arrived in Indonesia in 1512 and landed on Benton shore in java.

Dutchs mainly trade with valuable spices. Soon the Spanish, Dutch and English sent

ships to the Indonesia in search of wealth. Although they occupied Melaka, the

Portuguese soon could not control the growing volume of trade.

In shipping transport, an important contribution was made by the KPM (Koninklijke

Paketvaart-Maatschappij, Royal Packet boat Company) that served economicintegration as well as imperialist expansion. The crisis of the 1930s hit badly the

export economy severely.

The outbreak of world war -2 badly affects the trade in Indonesia and disrupted and

dislocated the economy. After the independence the major challenge for Indonesia is

to overcome from the hardships which they were facing.

After 1966, the authority of the country come in the hands of, general Soeharto, he

restored the inflow of western capital, brought back political stability along witheconomy stability with a strong role for the army, and led Indonesia into a period of

economic expansion.

In this period industrial production increased, these include steel, aluminum, and

cement but also products such as food, textiles and cigarettes.

From the 1970s onward the increased oil price on the world market provided

Indonesia with a massive income from oil and gas exports. Wood exports shifted from

logs to plywood, pulp, and paper, at the price of large stretches of environmentallyvaluable rainforest. Suharto invests this revenue in the technologically advanced

manufacturing. World Bank in 1993 terms this growth as EAST Asian Miracle and

appreciate macroeconomic stability and investment in human capital.

In the year-1997, country trapped into the Asian financial and economic crisis,

accompanied with drought which affected the livelihood of people and price fell

sharply for export commodity. As the exchange rate changed from a fixed to a

managed float to fully floating, currency (IDR or Rp) depreciated in value, inflation

boomed significantly, and capital flight started.


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After the resignation of Suharto', B.J. Habibie, became Indonesia's third President.

Habibie again established International Monetary Fund (IMF) and working for

economic stabilization. He released several prominent political and labor prisoners,

political parties, and labor unions, started investigations into the unethical, and lifted

controls on the press.

In 2009 again legislative election held for president and on October 20, Susilo

Bambang Yudhoyono become president for his second term.

Geography of Indonesia

Area of country: 2 million sq. km, about three times the size of Texas.

Maritime area: 7,900,000 sq. km.

Cities: capital-Jakarta . Other cities-Surabaya , Medan , Bandung .

Terrain: More than 17,500 islands; 6,000 are inhabited; 1,000 of which are

permanently settled. Large islands consist of coastal plains with mountainous

interiors.

Climate: Equatorial but cooler in the highlands.

Indonesia is the largest archipelago consisting of more than 17000 islands, come

between Indian Ocean and Pacific Ocean. The land of Indonesia formed mainly by the

eruption of volcanoes so the soil of the land of Indonesia is very fertile for the

agriculture.

The whole country divided into three parts, the east Indonesia, smaller sunda island

which consist Lombok and Komodo part, greater sunda island which consist Major

Island like Sumatra, Sulawesi, and Java, Bali.

The total area covered by country is 1904569 square km of which 80% is water.

Much of the area of the country covered by tropical rain forest. Indonesia is the abundant resource of natural gas and oil, due to these resources the

country lead to a great oil and gas industry, apart from oil and gas country also have

reserve of Coal, Bauxite and Nickel reserves.


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Most of the part of the country is mountainous and near at the equator, it has large

resource of water so it leads to micro hydro run of river. As we know country islocated near the equator line so the climatic condition of the country is temperate

throughout the year. The average rainfall is very high during the monsoon and

humidity is high. The weather of the country also affected by active volcanoes. There

are some natural hazards are also become obstacle in the growth of the country i.e.

occasional floods, severe droughts, volcanoes eruption, tsunamis, earthquakes.

Demographic condition

Population of Indonesia

Indonesia is the fourth most populous country of the world with population 245,613,043.

Males population is slightly greater than the females population. Average life expectancy

of individual is 70 years.

The government had implemented many policies to reduce the population size and it shows a

positive result in the population.

Countrys population consist 27% 0-14 age group, 66% 15-64 age group and rest of the

population include above the age of 65.


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Growth rate of population

Indonesia has shown a growth rate of 1.069% , 44% of total population living in

urban area while rest of the population living in rural part of the country. if we look

at the unemployment rate-it is quite high in the Indonesia after having so much natural

resources. The per capita income of family very low it is about 1200 USD/year. Poverty level of country decreased from 1976 to 1996 by 40.01% to 11.30%, but Asia

crisis again increased the poverty level in the country. Literacy rate in 2007 was

95.22% and 88.62% for male and female respectively. it clearly shows that there are

unequal opportunity for the education between two genders

Population below poverty line

Government and political condition

Indonesia is a republic country based on the 1945 constitution. It defined for aseparation of executive, legislative, and judicial power. Valuable changes have beenhappened after the resignation of President Suharato in 1998.

after the resignation of president Suharto ,Habibie come in power for a very shorttime.habibe government brought some changes in political reform and improvedelectoral system of country

MPR works as a powerful authority because it could recommend for a president andalso could impeach for the same seat.

Though the political scenario have been changed now the president elected on thebasis of voting and for five year term. The contestant who get maximum vote would

consider for president and vice president.


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Relation with international organization:

Indonesia seeks domestic as well as international interest to build up relationship with other

countries. the government in foreign policy of Indonesia come up with decision that their

country do not want to be issue of international conflict by aligning to a particular country,

but we want our country decide its decision by his own power. they want to develop relation

with other countries at the cost of their own independence.:

Outline of foreign relation:

For the fulfilment of above objective resolution no. 2/MPR/1993 of the peoples consultative

assembly outline Indonesias foreign relation as follows.

Foreign relation should be developed on the basis of independent and national interest so that

it would help in development of country. The aim should be to corporate other nation so that

it strengthen the relation of two countries.

Any international activity which threat or challenge the peacefulness of any country should

watched carefully so that appropriate steps can be taken to prevent negative impact.

Relation with neighbour:

Indonesia is a founding member of ASEAN and seen as keystone of the organization. it is

keen to promote corporation between ASEAN countries and often come up with political

issue and human rights.

Relation with Malaysia: Indonesia relationship with Malaysia are bilateral and many

time gone with ups and downs.There have been disputes over maritime territorial,

Ambalate and Sulawesi sea. some other issue are like illegal immigration So both

countries need to take initiative to reduce differences and should resolve it . it is important

that both countries has to sustained a good relationship and it is also beneficial to both

countries and ASEAN.

Relation with East Timor: Indonesia occupied Timor from 1975 to 1999. On 15 July

2008 president of both countries, Susilo Bambang Yudhoyono and Jose ramos-horta

received the report of the joint commission on truth and friendship .both countries accept

each others finding conclusion and recommendation and recognize earlier violation


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against human rights in 1999.after that both countries took several steps to sustain

peaceful relation with each other.

Relation with UK: there are bilateral relation exist between Indonesia and UK and both

countries show strong interest in the area of corporation .political relation exist in both the

countries since 1949. Britain show his interest in the development of Indonesia in order to

strengthen ASEAN for the stability in south east Asia.

Relation with USA: Indonesia share a very good relation with US and also played a

crucial role in the independence of Indonesia in late 1940.by that time to today both

country maintained corporative relation and no formal issue of security exist. The U.S. is

committed to strengthen Indonesias democratic development and supports the territorialintegrity of the country. About 50000 people from Indonesia want a non immigrant visa

every year. Indonesia get development assistance from the US since 1950.when US

started to help Indonesia that time mainly poverty level in Indonesia is very high and US

provided food ,health care ,infrastructure,rehabillation and training. USAIDs Program

Strategy for Indonesia for 2009-2014 responds to Indonesias remarkable democratic

transformation of the last decade and its progress toward becoming a strong, prosperous,

and inclusive nation.


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Economic Situation of the Country.

Economic Growth.

Indonesia as one of the high-growth emerging Asian economics, has bounced back to

a high growth with 6.1%GDP growth in 2010

Significant improvement in key areas such as higher export, increased investment and

strong consumer spending help to propel the economic growth.

Given that the ratio of public debt to GDP has gone from 94% to 27% in one decade,

the continued effort to reduce the government`s external debt base has helped to make

Indonesia a popular investment destination for foreign investors.

BBC World Service Survey ranked Indonesia as a country that has the best Culture in

the world for the people who start new businesses.

Investment growth reached estimated 10% supported by favourable investment

climate and hopeful global recovery.

Areas such as the trade, hotel and restaurant sectors and transport and communication

have continued to dominate the growth of business performance.

Since the beginning of 2010, the Rupiah has experienced firm appreciation against the

greenback, mostly attributable to a high rate of capital flows supported by surging

record foreign capital inflows and steady improvement in economic fundamentals.

The Rupiah has appreciated 4% in the past year and reached Rp. 8,991 in the end of

2010. To keep the Rupiah Stable the Central Bank has been guarding the currency at

its fundamental level of Rp. 8,900 9,300 against US$ and intervening by buying

foreign currencies to control the local currency volatility.

The outlook for economy has encouraged greater bank lending at the end of 2010 as

at the same time; the low interest rate policy set by Bank of Indonesia has helped

commercial bank reduce their lending rate.


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GDP.

Indonesia Gross domestic product showed an upward trend from 2006 to 2007

wherein the economy was in boom period.

From 2008 to 2009 Economy GDP fell drastically 6.10% to 4.30% change which was

contributed by global recession started in U.S.

According to the Indonesia Country Report, the Indonesia economy survived the

global economy crisis well, the Economy grew 6.4% year on year in third quarter of

2011 after growth of 6.1% in 2010 on the back of continued strong domestic

consumption (accounting for 60 % of GDP), private consumption increased 4.8 %,

government consumption 2.5 % and investments rose 7.1 % year-on-year and also

different sector also contributed Agriculture 15.3%, Industry 47%, Service 37.6% also

play a major role in the development of the country and the GDP growth of the

country. Exports also contributed to growth and also large balance of payments

surplus and improved financial sector performance.

Indonesia GDP Per capita stands at $4200 in 2010, $4000 in 2009, $3900 in 2008

according to the World Bank which indicates that there is increasing trend in the GDP

per capita of the country.

INFLATION RATE.

0

1

2

3

4

5

6

7

2006 2007 2008 2009 2010 2011

GDP (Growth rate % change)


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After reaching 9.9 % in 2008, inflation declined to 4.8% in 2009 as the price of commodities

and staple items decreased. The largest increased pressure to the change in CPI annual

inflation came from Rise in the cost of food, air fares and petrol. The downward trend in CPI

between from 2008 to 2009 came from decrease in cost of food; electricity and gas.

Consumer prices rose slightly in 2010, but increased by only 4.4 % year-on-year in October

2011. Overall, inflation is expected to be around 5.6 % for 2011. In October2011, BankIndonesia lowered its benchmark interest rate by 25 basis points - to 6.50 % - to support the

economy amid signs of weakening global economic growth and the decelerating trend of

inflation. It has repeated this step in November 2011, lowering the interest rate to 6.00%.

UNEMPLOYEMENT RATE.

0

2

4

6

8

10

12

14

2006 2007 2008 2009 2010 2011

INFLATION HISTORY

INFLATION HISTORY

0

2

4

6

8

10

12

14

2006 2007 2008 2009 2010

UNEMPLOYEMENT RATE

UNEMPLOYEMENT RATE


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As from the above data it is clear that unemployment rate in Indonesia is decreasing as

compared to 2006 to 2010 and it decreased to 5.4% which indicates that the government

allowing foreign investors to invest in the country.

The main reason for the boost in the employment growth is:

Employment growth has been achieved through the removal of market barriers which

led to the entry of new market participants which in turn increased the employment

rate of the country.

The increase in the competition led to the effective use of resources which ultimately

increased the innovation and investment in the market and which also help to create

employment opportunities in the country.

Structural reforms like liberalization of transport sector and plans to expand the

flexibility of the long-distance bus transport system shows the reason for boost in the

employment of the country.

Economic liquidity And Payment System.

The foreign exchange (FX) reserves have received a boost by the foreign capital flows. FX

reserves are expected to arrive at USD 131.6bn by end-2011 , which would mean that reserves

have more than doubled in three years. It would cover about 80% of the total external debt,

which has declined in relative terms in the past years, to a little below 20% of GDP. Also,

other liquidity indicators have improved, e.g. import cover is now close to 6.6 months and the

liquidity ratio is expected to be around 140% in 2011/12. The improved liquidity position

puts Indonesia in a better position in case of foreign investment reversal and global economic

downturn. As emphasized above, low revenue mobilization hinders economic development

by limiting investment in infrastructure and social development. Indonesia most important

planning is a major change in the regulatory architecture by creating an integrated

Supervisory agency.

Government Policy.

In 2008, Indonesia finalized its Economic Partnership Agreement (EPA) with Japan, a

significant trade partner and Indonesia's biggest foreign investor. The agreement is

Indonesia's first bilateral free trade deal and exempts Indonesia from 90% of Japanese

import duties


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In anticipation of a global slowdown and the fall-out effects on Indonesia, the central

bank has lowered interest rates twice in the past month. The first rate cut of 25bps

seemed proactive, the second of 50bps was a surprise and perhaps too aggressive.

Growth in the third quarter was above expectation and credit growth remains above

the central banks target (27% yoy in first nine months vs. 22% target). The latter

could lead to a quality decline in the banking sector.

Certain changes are made due to the implementation of competition law and policy

that heading to deregulation, market openness, and privatization on some areas.

Deregulation was made in strategic sectors such as, telecommunication, airline

transportation, oil and gas, etc.

In early 2010, the Government of Indonesia also formally decided to become a

candidate country of the Extractive Industries Transparency Initiative (EITI), which

will increase accountability and transparency in energy revenue transactions between

the government and oil, gas, and mining firms.

The Government of Indonesia has announced a series of economic policy packages

aimed at stimulating investment and infrastructure improvements and implementing

regulatory reform.

The framework for monetary operations, the management of system liquidity by the

central bank, and money market development are all interlinked, and all contribute to

the effectiveness of monetary policy.

Natural Resources.

Petroleum, tin, natural gas, nickel, timber, bauxite, copper, fertile soils, coal, gold, silver are

the natural resources of INDONESIA. The Total natural resources rents (% of GDP) in

Indonesia was 5.86 in 2009, according to a World Bank report, published in 2010. The Total

natural resources rents (% of GDP) in Indonesia were reported at 11.42 in 2008.

Export& Import.


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Indonesia imports were worth 15625 Million USD in October of 2011. Indonesia major

imports are: machinery and equipment; chemicals, fuels and food. Main import partners are

Singapore, China, European Union, Japan and Malaysia.

Indonesia exports were worth 16804 Million USD in October of 2011. Indonesia major

exports are: gas, plywood, textiles and rubber. Indonesia is the world's largest tin market.

Although minerals production traditionally centred on bauxite, silver, and tin, Indonesia is

expanding its copper, nickel, gold, and coal output for export markets. Until 2007 Indonesia

has been an oil exporter. Main export partners are: Japan, European Union, United States and

Singapore.

0

20

40

60

80

100

120140

160

180

2006 2007 2008 2009 2010 2011

IMPORT DATA

IMPORT DATA

0

20

40

60

80

100

120

140

160

180

2006 2007 2008 2009 2010 2011

EXPORT DATA

Export Data


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From the above figures of Export and Import of Indonesia we can conclude that at the time of

recession both the exports and imports have declined considerably from the period Jan 2009

to Jan 2010. But because of the competency among the companies of Indonesia and

technological improvement they were able to recover it.

Balance of payment:

Indonesias balance of payments position has been strengthening since 2009 when the global

economic recovery began. The BOP surplus in 2009-2010 reached USD 39bn, it happen due

to the stable inflows from the current account and foreign direct investment which

contributed to 60% of the BOP surplus from 2009 to 2010.Portfolio and other investments,

which are volatile in nature, accounted for the remaining 40%.

Factors influencing developments in the Indonesia balance of payments during third quarter

of 2011 include:

Diversifying across multiple trading partners bolstered a remained robust export

performance during the quarter, despite some slackening in prices for major export

commodities.

A buoyant economic growth of 6.5% in third quarter of 2011 on the back of brisk expansionin household consumption and investment at 4.8% and 7.1%. The upbeat trend in domestic

demand fuelled accelerated growth in nonoil and gas imports.

Rising oil production and a modest reduction in domestic consumption of oil-based fuels

narrowed the deficit in the oil trade balance.


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BUSINESS ENVIRONMENT & OPPURTUNITIES

HIGHLIGHTS:

Indonesias Overall Doing Business Ranking has decreased in 2011, reflecting lower

scores for six indicators.

The latest Enterprise Survey (2009) reflects the major constraints involved to

investment in Indonesia. Of the firms surveyed, 65% report competing with the

unregistered or informal firms. Only 18% report of having a loan or a line of line

credit from a financial institution.

Indonesias Economic freedom score is 56, making it the 116 th freest economy in the

2011 index. Indonesias score has improved by 0.5 points from the last year and has

reported an improvement in half of the measured economic freedom. It is also ranked

22nd among the 41 countries in the Asia-Pacific region.

GLOBAL RANKINGS

(Reference: worldbank.org)

FOREIGN DIRECT INVESTMENT.

From the last two decades, Foreign Direct Investment has become increasingly critical to the

developing world, with the increasing number of the developing countries succeeding in

alluring substantial and rising amounts of inward FDI.

Indonesia has taken over a decade in the prevailing difficult situations to reform itself

both politically and economically. These reforms have the Indonesian economy resilient


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which has entailed the democracy to firmly establish itself and growing at a steady pace in

spite of the global financial crisis. This has in turn proved to ameliorate the investment

climate of Indonesia.

FDI has been an important element in the economic development of Indonesia. Even

though the share of FDI in total GDP has been low, however it plays an important role in

generating exports and promoting employment and overall productivity. FDI has created

almost half the new jobs in recent years and since 1990 the exports from the foreign

multinationals have accounted for increase in share of the entire nations exports.

Since the 1990s Indonesia has enjoyed impressive success in the overcoming

political and economic obstacles. The new economic laws and policies, which were

formulated are now bearing fruit for the country in the form of stable growth and increasing

foreign direct investment.

Indonesias government saw foreign direct investment at 118.4 trillion rupiah

($13.4bn) in 2010, which has substantially increased by 22% from the last year.

The investment climate and domestic economic performance has provided a lift to

foreign investor confidence for direct investment into the Indonesian economy.

The chunk of the foreign direct investments has come from the expanding share of the

non-oil and gas sector.

Within the non-oil and gas sector the foreign direct investors have targeted primarily

manufacturing, mining and quarrying, trade and communications.

Foreign Investors face significant restriction form the Indonesian government. The

industries on the Negative List are closed to foreign investment or are subjected to

market conditions.

Subject to approvals and restrictions, residents and non-residents may indulge into

foreign exchange and capital transactions. Non-residents are restricted form purchase

of real estate.


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FIG: FDI Composition.

FOREIGN INFLOWS

The inflow of Foreign Capital into the Indonesian Economy has been substantially

strong ever since the global recovery last year enticed by the countrys promising

economic prospects, a positive sovereign rating and high yields.

From April 2009 to September 2010 the magnitude of foreign holdings of the

Indonesian government bonds has increased a cumulative USD 13.5 billion.

The value of foreign holdings as percentage of the total tradable rupiah government

bonds has risen from 15% (April09) to a record high of 28%.

The aggregate foreign inflows into the Indonesias bond, equity and SBI markets have

reached USD 22bn.


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Foreign net purchase of equity has been reported to be USD 3.6bn over the past 18

months.

The amount of foreign holdings of the Central Bank Certificates (SBI) alas registered

an increase of USD 4.7bn.

TRADE POLICY

Indonesian exports have doubled from $29 billion to $60 billion between 1990 and 1997. In

spite of the slump in 1998-99 because of the Asian financial crisis, growth in export value

resumed, reaching $151 billion in 2008 before dipping to $130 billion in 2009 as a result of

the recent global recession.

Gross capital formation was almost to 31% of GDP in the year 2009, no higher than the

investment rate in 1990. The investment recovered after the dilapidation to 17% of GDP in

1998 and 11% in 1999; however the recovery was slow, until 1999 when it regained its 1990

share of GDP. Incidentally, other ASEAN countries have also had trouble maintaining high

rates of national investment since 1999. In 2009, Indonesia had 33% rate which was

significantly higher than the investment rates of the other countries in the region like that of

Malaysia (14%), the Philippines (15%), and Thailand (22%). Vietnam remains to be the only

country where the rate of investment soared from 13% in 1990 to 43% in 2007 beforedeclining to 38% in 2009.

Indonesia scores 73.8 (2010) among the entire global economies from the aspect of trade

freedom. Indonesias weighted average tariff rate was 3.1% in 2009.

The Indonesian trade and investment policy and performance, carried out by the OECD in

2010, showcased the long-term trend toward opening up the economy. FDI in Indonesian

economy has recovered since the Asian financial crisis and more specifically on the advent of

the Investment Law in 2007. Indonesia has exhibited a new resilience to global shocks by

maintaining a reasonably high capital inflow during the recent global economic crisis. In the

Indonesian economy FDI has historically been a small fraction of gross capital formation, it

has been important for raising productivity and employment and for generating exports.

For promoting further policy and economy reform for maintaining openness and accelerating

the growth of investment and exports consummating to faster economic growth has taken few

important steps.


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Firstly, Indonesia tends to rejuvenate its campaign against freedom. Earlier in the

Yudhoyono regime, robust steps were taken to prosecute corrupt officials, business

people, and judges thereby focussing on the reduction of the major barrier of

investment.

Secondly, Indonesia is trying to further capitalize on the substantial improvement by

liberalizing investment rules and simplifying regulatory procedures that impinge on

businesses.

Thirdly, Indonesia is plans to invest in roads, power, communications, water and

sewerage, ports, and airports. Public and private investments are expected to

accelerate in the near future through public-private partnership.

MONETARY POLICY

Inflation in Indonesia has moderated; averaging 6.1% between 2007 and 2009. The central

bank has cut its interest rates from 9.5% in November 2008 to 6.5% in July 2009 to help both

the businesses and consumers endure the global downturn. Subsidies are granted toward fuel,

housing, and health carewhereas the prices of gasoline, electricity, liquefied petroleum gas,

rice, cigarettes, cement, hospital services, potable/piped water, city transport, air transport,

telephone charges, trains, salt, toll-road tariffs, and postage are set by the government.

The current policy reaction from Bank Indonesia is aimed at tolerating certain appreciation in

the rupiah, increasing open market operations and hiking the reserve requirement ratios to

take care of the increased liquidity in the economy. It also takes into consideration regulatory

measures to directly guide inflows. The main steps undertaken were specifically:

The dollar/rupiah rate was allowed to dip below 9000.


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From Apr09 to Sep10, the open market operations have been increased by USD

6.9bn.

The banks reserve requirement ratio was raised by 300 basis points in Sep10.

For the foreign investments into the Central Bank Certificates a minimum holding

period of one month was imposed on the foreign investors (Jun10).

However, the policy mix has not been sufficient enough to prevent capital inflows resulting

into the expansion of domestic liquidity supply. The base money still has expanded by

USD13.2bn from Apr09 to Sep10. The YoY growth in the base money has surged on to be

20%, ever since the last quarter of 2009, dominating the nominal GDP growth trend of 18.7%

(avg. 04-09). The Bank of Indonesias credit has expanded too reaching 20% growth rate

from Jul10. During M2 growth approached 20%, CPI Inflation stayed above 6%, including

the period which was unaffected by the inflation from fuel prices.

FIG: Base Money Expanding. FIG: Money Supply versus Inflation.


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FIG: INDONESIA INTEREST RATE

FUTURE POLICIES

With the inflow expected to persist in the coming year the future monetary policies has to be

formulated well enough to keep the economy stable. The appreciation in IDR is not expected.

The IDR level has already recovered from the 2008 level, and the IDR REER currently is

about only 12% just below the historical Asian Financial Crisis 1997-98. The exports of

Indonesia basically comprises of commodity goods which are rather inelastic to the demand

in the global market hence, a strong rupiah does not seem to damage the competitiveness of

Indonesian exports. Rather the concern remains on the front that a strong rupiah boosts

imports and erodes trade and current account balance, which may lead to the exposure of

balance of payments to volatility of capital flows. The current account surplus has already

registered a fall and the World Bank predicts a small deficit of USD 1.2bn next year.

However, it is implicit that Indonesias outstanding amount of gross external debt is still 2.4

times of foreign reserves. The Bank of Indonesia could find it necessary to accumulate

reserves in order to support current account balance. This would alleviate the destabilization

effects stemming from a reversal in capital movement one day in future.

In response to the expansion of domestic money supply, plans for tightening the liquidity will

be reinforced although the Bank of Indonesia has shown itself to be reluctant enough to

increase the interest rates. The benchmark rate level of 6.5% in Indonesia is among the

highest in the region. Rate hikes will understandably become unavoidable with the surge in

inflation. Rate hikes could also affect the lower down investors expectation as they with


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respect to economic growth and asset price returns. Bank of Indonesia is expected to hike the

rate to a neutral 8% from 6.5%.

FISCAL POLICY

Indonesia has reduced taxes to moderate levels as part of broader fiscal reform. The top

individual income tax rate is 30 percent. The top corporate tax rate has been reduced from 28

percent to 25 percent. Other taxes include a value-added tax (VAT) and a property tax. In the

most recent year, overall tax revenue as a percentage of GDP was 13.3 percent.

During the global downturn the Indonesian government followed an expansionary

monetary policy to sustain their domestic demand. With the improvement in the countrys

macroeconomic fundamentals and political stability are attracting foreign investors to the

countrys debt market. Tax revenues picked up in 2010 on more intense collection efforts.

These sources proved to be adequate enough to finance the fiscal deficit, but Indonesia made

substantial reforms in their subsidy structure and efficiency of commodity revenues with their

focus on attaining medium-term fiscal sustainability.


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DOING BUSINESS

The Doing Business section of the report enlightens us on the prospect of business in the

country. It basically deals with the ease or difficulty of an entrepreneur to run a small size to

medium size business in Indonesia. This section engages with the changes in the regulation

affecting 10 areas in the life cycle of the business: starting of business, dealing with

construction permits, getting electricity, registering property, getting credit, protecting

investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

2011 2010 2009 2008 2007 2011 2010 2009 2008 2007 2006 2005 2004 2003

60 60 5.5 5.5 5.4 5.4 5.5 5.2

82 82

144 138 145 -5 -0.7 -0.6 -0.7 -0.8 -0.9 -0.9 -1

203 202 201

114 110 112 -0.3 -0.3 -0.3 -0.3 -0.5 -0.6 -0.7

203 202 200

61 60 73 78 76 0-100 56.4 56.2 50.1 48.2 47 41.8 37.7 33.4 25

178 178 178 174 174

114 131 122 125 0-100 55.5 53.4 53.2 53.2 51.9 52.9 52.1 55.8

178 179 157 157

96 89 96 89 99 0-100 59 61 60.5 62 60.5 58 52 51.5 49

140 140 140 140 140

129 126 1-183

Rank scoreindicator scale

PRS group

ntrol of corruption indicator

EIU-global outlook report

world bank group

world bank group

age foundation and the wall street

journal

regulatory quality

country credity rating

usiness environment Index

institutional investor

dex of economic freedom

political risk rating (ICRG)

doing business ranking


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DOING BUSINESS: COUNTRY RANKINGS

Ease of DB2012 DB2011 Change in Rank

Doing Business (Overall Ranking) 129 126 -3

Starting a Business 155 156 +1

Dealing with Construction Permits 71 71 0

Registering Property 99 96 -3

Getting Credit 126 116 -10

Protecting Investors 46 44 -2

Paying Taxes 131 134 +3

Trading Across Borders

Enforcing Contracts

Resolving Insolvency

39

156

146

38

154

149

-1

-2

+3

For the entrepreneurs to start up their venture in a particular country they must first

need to understand where the country stands in the different aspects of doing business.

According to the Doing Business survey, for business to start in Indonesia it requires

8 procedures, takes 45 days, and costs 17.9% income per capita along with paid-in

minimum capital of 46.6% of income per capita.

Indonesia ranks at 155 of 183 economies on the ease of starting a business. Over the

years the country has proved itself more conducive to start a business.


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The report reflect that for a business to start in the year 2004 it required to go through

12 procedures, which has reduced to just 9 procedures in 2011 and it is projected that

by 2012 it will be further reduced to just 8 procedures.

Time required for starting a business in the year 2011 has also reduced from 168 days

in the year 2004 to just 45 days in the coming year 2012.

The cost as percentage of income per capita has decreased from 136.7 in the year

2004 to just 53.1 in the present year 2011.

In the year 2009 the business start up was made easier but the minimum capital

required for that sake had doubled, over the years Indonesia made the business start

up easier by reducing the company name clearance , reservation and the time required

to reserve the company name. For the upcoming years Indonesia plans to make

business easier by introducing a simplified application process which would entail the

entrepreneurs to obtain both general trading license and a business registration

certificate.

SUBNATIONAL DOING BUSINESS REPORT

Doing Business in Indonesia compared business regulations across 14 Indonesian cities. Te

report emphasizes on the collaboration of the national and local regulations across these 14

cities that affects 3 basic stages in the life of small to medium size firms in the domestic

market viz. starting a business, dealing with construction permits and registering property.

This was for the first time that Doing Business has gone beyond Jakarta to ponder on theopportunities available for collaboration between the national as well as the local

government, which eventually leads to better business prospects within the cities surveyed.

Main Findings:

Yogyakarta was among the top 10 cities globally on the number of procedures for

dealing with construction permits. This was due to the affect of the collaboration of

the zoning and buildings authorities.


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In the city of Manado transferring a property title took the same amount of time as it

would take in the United Sates and hence was put into the 24th position worldwide.

Entrepreneurs in Manado had to wait for less than 2 weeks for transferring theirproperty title, whereas in Surakarta they had to wait for almost 2 months.

Both Yogyakarta and Bandung led the overall ranking on the 3 indicators measured

among the fourteen cities surveyed.

Business registration was found to be faster and easier in cities where business

licenses administered by the local government were consolidated at one-stop shops.

BUSINESS OPPORTUNITY

Indonesia is asseverating itself as a premiere destination for international business and

investment. Over the past few years Indonesia's natural resources, large population (including

its rapidly growing middle class), macroeconomic stability, generally open investment

regime, and low asset prices have become major attractions for prospective businesses.

The central government has formulated Master Plan for the Acceleration and Expansion ofIndonesian Economic Development (MP3EI) for the period 2011-2025. This plan has been

devised to alleviate widespread investments of all sizes across the archipelago. Rp 4,000

trillion has been appropriated to achieve desired developments in Indonesia's six designated

economic corridors within the MP3EI. A major chunk of these are expected to come from the

private sector and state-owned enterprises, and a big chunk will go to infrastructure projects

to ease connectivity within the archipelago.

Conclusion.

Indonesian economic performance is predicted to continue improving. In 2012, economic

growth is expected to increase, the balance of payments surplus will remain large, the bank

intermediation function will improve and inflation will remain within its target. In the

medium term, the domestic economy is projected to continue expanding and accompanied by

further decrease in inflation. Bank Indonesia will remain directing its policies towards

macroeconomic and financial system stability to support sustainable economic growth.

Monetary policy will continue aiming to achieve the inflation target, while banking policy is


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directed to enhance bank resilience in order to boost bank performance and competitiveness

as well as to withstand crisis shocks. Payment system policy is directed to create a more

efficient, reliable, simple and secure payment system.

BIBLIOGRAPHY

www.centralrepublicbankofindonesia

www.doingbusiness.org

www.indonesiacountryreport.com

www.imf2010.com

www.cia.gov.

www.state.gov.

www.investmentindonesia.com

www.worldbank.com
http://www.centralrepublicbankofindonesia/http://www.doingbusiness.org/http://www.indonesiacountryreport.com/http://www.imf2010.com/http://www.cia.gov/http://www.worldbank.com/http://www.worldbank.com/http://www.worldbank.com/http://www.cia.gov/http://www.imf2010.com/http://www.indonesiacountryreport.com/http://www.doingbusiness.org/http://www.centralrepublicbankofindonesia/

my country report indonesia

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