Last published date:2024-01-09
Indonesia, a country of 279.5 million people, is Southeast Asia’s largest economy with a GDP of approximately $1.32 trillion USD in 2022. The economy has shown a strong rebound since contracting in 2020 exceeding the 2019 GDP with $1.19 trillion in 2021. By the end of 2022, Indonesia’s economy grew by 5.3% returning to its decade of growth above five percent that had been halted by the COVID-19 restrictions in 2020 and 2021. Indonesia is a thriving democracy with significant regional autonomy. The country is located on one of the world’s major trade routes and has extensive natural resource wealth distributed over an area the size of the continental United States and is comprised of over 17,500 islands.
The government led by President Joko Widodo (known as “Jokowi”) focused his first five-year term on improving infrastructure, diversifying the economy, and reducing barriers to doing business in Indonesia; in an attempt to propel the economy beyond middle-income status over the next generation. Re-elected to a second term in November 2019, President Jokowi and his cabinet have reaffirmed these commitments and called for a renewed emphasis on infrastructure and human capital development to upskill Indonesian workers and help drive growth in the manufacturing and digital sectors.
The Indonesian economy possesses sound fundamentals of social stability, strong domestic demand for goods and services, steadily increasing foreign reserves (about $137.5 billion in June 2023), and stable prices with moderate-to-low inflation. However, persistent trade and investment barriers driven by protectionist sentiment, persistent and pervasive corruption, poor infrastructure, inconsistent interpretation and enforcement of laws, and labor rigidity continue to inhibit greater levels of economic growth and prosperity.
On 21 March 2023, the Government of Indonesia passed an omnibus regulation into law on Job Creation. The law revises more than 70 existing laws, streamline red tape, attract greater levels of investment, and fuel job creation and economic growth. Labor and environmental groups, as well as those opposed to increased centralized government control, have been largely at odds with the business groups who supported the bill’s streamlined bureaucratic processes and flexible labor regulations. Topics include investment, labor, micro-small-and-medium enterprise policy, research and innovation, land acquisition, economic zones, job creation, sanctions and fines, sovereign wealth fund activity, and more.
Political Environment
Visit State Department’s website for background on the Indonesia’s political and economic environment at https://www.state.gov/countries-areas/indonesia/.