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Indonesia’s 276 million population, USD 1 trillion economy, growing middle class, abundant natural resources, and stable economy are attractive features to U.S. investors; however, investing in Indonesia remains challenging according to business contacts. President Joko (or “President Jokowi”) Widodo, now in his second five-year term, has prioritized pandemic recovery, infrastructure investment, and human capital development. The government’s marquee reform effort — the 2020 Omnibus Law on Job Creation (Omnibus Law) — was ratified in March 2023. When fully implemented, the Omnibus Law is touted to improve competitiveness by lowering corporate taxes, reforming labor laws, and reducing bureaucratic and regulatory barriers. The United States does not have a bilateral investment treaty (BIT) with Indonesia.

In February 2021, Indonesia replaced its 2016 Negative Investment List, liberalizing nearly all sectors to foreign investment, except for seven “strategic” sectors reserved for central government oversight. In 2021, the government established the Risk-Based Online Single Submission System (OSS), to streamline the business license and import permit process. Indonesia established a sovereign wealth fund (Indonesian Investment Authority, i.e., INA) in 2021 that has a goal of attracting foreign investment for government infrastructure projects in sectors such as transportation, oil and gas, health, tourism, and digital technologies, with a large nexus to the Ministry of State-Owned Enterprises (BUMN).

Foreign investors find that restrictive regulations, legal and regulatory uncertainty, economic nationalism, trade protectionism, and vested interests complicate the investment climate. Foreign businesses may be expected to partner with Indonesian companies and to manufacture or purchase goods and services locally. Labor unions have protested new labor policies under the Omnibus Law that they note have weakened labor rights. Labor unions report that restrictions imposed on the authority of the Indonesian Corruption Eradication Commission (KPK) led to a significant decline in investigations and prosecutions in lieu of education and prevention. Investors cite corruption as an obstacle to pursuing opportunities in Indonesia.

Some U.S. investors describe the investment climate as much improved over the past decade, but point out that, other barriers remain, including bureaucratic inefficiency, delays in land acquisition and the tendering process for infrastructure projects, weak enforcement of contracts, and delays in receiving refunds for advance corporate tax overpayments. Investors worry that new regulations are sometimes imprecise and lack stakeholder consultation. Companies report that the energy and mining sectors still face investment barriers, and all sectors lack adequate IP protection and enforcement, and restrictions on cross border data flows remain.

Nonetheless, Indonesia continues to attract significant foreign investment and foreign business chambers report an optimistic view of expanding economic. Singapore, the United States, Japan, the Netherlands, and China (PRC, HK) were among the top foreign investment sources in 2022. Private consumption drives the Indonesian economy that is the largest in ASEAN, making it a promising destination for a wide range of companies, from consumer products and financial services to digital start-ups and e-commerce. Indonesia has ambitious plans to expand access to renewable energy, build mining and mineral downstream industries (focused on electric vehicles and related components), improve agriculture production, and enhance infrastructure, including building roads, ports, railways, and airports, as well as telecommunications and broadband networks. Indonesia continues to attract American digital technology companies, financial technology start-ups, franchises, health services producers and consumer product manufacturers.

The Indonesian Government implemented new taxes and pricing regulations over the past few years to curb carbon emissions and manage emissions from the forest and land use sector. In 2022, the Indonesian Just Energy Transition Partnership (JETP) pledged to support an ambitious and just power sector transition in Indonesia, consistent with international global warming targets.

Russia’s invasion of Ukraine has caused supply disruptions, including increases in global energy and food prices. Indonesia is affected through an increase in prices of traded goods. The government of Indonesia increased the price of subsidized fuel in September 2022, which caused increases in transportation and food prices and triggered a surge in the inflation rate to 5.95 percent in September. In response, Bank Indonesia (BI) increased their policy rate to 5.75 percent to contain inflation expectations. BI believes that the 5.75 percent rate is adequate to ensure core inflation remains within the range of 2-4 percent in the first half of 2023, and that consumer price index (CPI) inflation returns to the target corridor of 2-4 percent in the second half of 2023.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2022 110 of 180
Global Innovation Index 2022 75 of 132
U.S. FDI in partner country ($M USD, historical stock positions) 2021 15,737 M
World Bank GNI per capita ($ USD, historical stock positions) 2021 4,180  USD

Policies Towards Foreign Direct Investment

Indonesia is an attractive destination for foreign direct investment (FDI) due to its relatively young demographics, strong domestic demand, stable political situation, abundant natural resources, and well-regarded macroeconomic policy. Indonesian government officials often state they welcome increased FDI, aiming to create jobs, spur economic growth, and court foreign investors, notably focusing on infrastructure development, export-oriented manufacturing, mining refinery industries, and green investment. To further improve the investment climate, the government issued the Omnibus Law on Job Creation (Law No. 1/2020) in October 2020 to amend dozens of prevailing laws deemed to hamper investment. President Jokowi signed the law in late 2022. The Indonesian House of Representatives ratified the law in March 2023. The Omnibus Law introduces a risk-based approach for business licensing, simplified environmental requirements and building certificates, tax reforms to ease doing business, more flexible labor regulations, and the establishment of the priority investment list. It also streamlines the business licensing process at the regional level. However, investors cite concerns over restrictive technical regulations, policy inconsistency, bureaucratic inefficiency, lack of infrastructure, sanctity of contract issues, and corruption.

The Ministry of Investment / Investment Coordinating Board (BKPM) serves as an investment promotion agency, a regulatory body, and the agency in charge of approving planned investments in Indonesia. As such, it is the first point of contact for foreign investors, particularly in manufacturing, industrial, and non-financial services sectors. To conduct business in Indonesia, foreign investors must be incorporated as a foreign-owned limited liability company (PMA) through the Ministry of Law and Human Rights. Once incorporated, a PMA must fulfill business licensing requirements through the OSS system.

In August 2021, BKPM launched the Risk-Based Online Single Submission (OSS), an integrated online system that streamlines almost all business licensing and permitting processes (except in the oil and gas, and financial sectors).  Under the OSS, businesses deemed lower risk will face fewer administrative requirements to obtain permits and licenses. The Government of Indonesia simplified building permit requirements and streamlined the environmental license process, which the government deemed were major sources of corruption in overall business licensing. The OSS system intends to streamline permit issuance, but integrating overlapping authorities across ministries into one system, both at the national and subnational level, is ongoing. The Omnibus Law on Job Creation requires local governments to integrate their license systems into the OSS. The law allows the central government to take over local governments’ authority if local governments are not performing. The government has provided investment incentives particularly for “priority” sectors (please see the section on Industrial Policies).

Limits on Foreign Control and Right to Private Ownership and Establishment

As part of the implementation of the Omnibus Law on Job Creation, the Indonesian government enacted Presidential Regulation No. 10/2021 to introduce a significant liberalization of foreign investment in Indonesia, repealing the 2016 Negative List of Investment (DNI). In contrast to the previous regulation, the new investment list sets a default principle that all business sectors are open for investment unless stipulated otherwise. It details the seven sectors that are closed to investment, explains that public services and defense are reserved for the central government, and outlines four categories of sectors that are open to investment: priority investment sectors that are eligible for incentives; sectors that are reserved for micro, small, and medium enterprises (MSMEs) and cooperatives or open to foreign investors who cooperate with them; sectors that are open with certain requirements (i.e., with caps on foreign ownership or special permit requirements); and sectors that are fully open for foreign investment. Although hundreds of sectors that were previously closed or subject to foreign ownership caps are in theory open to 100 percent foreign investment, in practice, technical and sectoral regulations may stipulate different or conflicting requirements that still need to be resolved.

In total, 245 business fields listed in the new Investment Priorities List, or DPI, are eligible for fiscal and non-fiscal incentives, notably pioneer industries, export-oriented manufacturing, capital intensive industries, national infrastructure projects, digital economy, labor-intensive industries, as well as research and development activities. Restrictions on foreign ownership in telecommunications and information technology (e.g., internet providers, fixed telecommunication providers, mobile network providers), construction services, oil and gas support services, electricity, distribution, plantations, and transportation were removed. Healthcare services, including hospitals/clinics, wholesale pharmaceutical raw materials, and finished drug manufacturing are fully open for foreign investment, which was previously capped in certain percentages with complex restrictions. The regulation also reduced the number of business fields that are subject to certain requirements to only 46 sectors. Domestic sea transportation and postal services are allowed up to 49 percent of foreign ownership, while press, including magazines and newspapers, and broadcasting sectors are allowed up to 49 percent and 20 percent, respectively, but only for business expansion or capital increases. Small plantations, industry related to special cultural heritage, and low technology industries or industries with capital less than IDR10 billion (USD 700,000) are reserved for MSMEs and cooperatives. Foreign investors in partnership with MSMEs and cooperatives can invest in certain designated areas. The new investment list shortened the number of restricted sectors from 20 to 7 categories including cannabis, gambling, fishing of endangered species, coral extraction, alcohol, industries using ozone-depleting materials, and chemical weapons. In addition, while education investment is still subject to the Education Law, Government Regulation No. 40/2021 permits education and health investment as business activities in special economic zones.

In 2016, BI issued Regulation No. 18/2016 on the implementation of transaction processing. The regulation governs all companies providing the following services: principal, issuer, acquirer, clearing, final settlement operator, and operator of funds transfer. The BI Regulation capped foreign ownership of payments companies at 20 percent, though it contained a grandfathering provision. BI’s Regulation No. 19/2017 on the National Payment Gateway (NPG) subsequently imposed a 20 percent foreign equity cap on all companies engaging in domestic debit switching transactions. Firms wishing to continue executing domestic debit transactions are obligated to sign partnership agreements with one of Indonesia’s four NPG switching companies. In December 2020, BI issued umbrella Regulation No. 22/23/2020 on the Payment System which implements BI’s 2025 Payment System Blueprint and introduces a risk-based categorization and licensing system. The regulation entered into force on July 1, 2021. The umbrella regulation, along with BI Regulation No. 23/06/2021 on payment system providers issued subsequently, allow 85 percent foreign ownership of non-bank payment services providers, although at least 51 percent of shares with voting rights must be owned by Indonesians, and foreign investors may only hold 49 percent of voting shares. The 20 percent foreign equity cap remains in place for payment system infrastructure operators who handle clearing and settlement services, and a grandfathering provision remains in effect for existing licensed payment companies. U.S. payment systems companies have stated that the new regulations could further limit access to Indonesia’s financial services market. Prior regulations required authorization, clearing, and settlement to be processed onshore. The regulations add initiation of a payment as an onshore processing requirement. The regulations do not specify requirements by product. While the regulations provide for offshore processing if certain requirements are met, it is subject to BI approval. Based on the Payment System Blueprint 2025 plan, the expansion of NPG services will be focused on developing card-based payment service standards in stages that will be mutually agreed upon with the industry.

Financial Services Authority (OJK) Regulation No. 12/POJK.03/2021, issued in August 2021, increased the foreign equity cap for commercial banks to 99 percent subject to OJK evaluation and approval, and foreign entities should meet requirements as follows: be committed to support the development of the Indonesian economy; obtain recommendations from the supervisory authority of the country of origin; and have a rating of at least 1 level above the lowest investment rating for bank financial institutions, 2 levels above the lowest investment rating for nonbank financial institutions, and 3 levels above the lowest investment rating for legal entities that are not financial institutions. The regulation does not repeal the regulations listed in OJK regulation No. 56/2016 article 2 and article 6 paragraph 1, stating that foreign entities may own shares of a bank representing more than 40 percent of the Bank’s capital subject to the approval of the OJK. Foreigners may purchase equity in state-owned firms through initial public offerings and the secondary market. Capital investments in publicly listed companies through the stock exchange are generally not subject to the limitation of foreign ownership as stipulated in Presidential Regulation No. 10/2021, which was amended by Presidential Regulation No. 49/2021.

Government Regulation 14/2018 (Regulation 14) on foreign ownership in insurance companies set the maximum threshold for foreign equity ownership of an Indonesian insurance company to 80 percent but exempted insurance companies with existing foreign ownership levels that exceed 80 percent. Subsequently, the government issued Government Regulation 3/2020 to strengthen the grandfathering provisions of Regulation 14 by allowing foreign investors to inject capital and maintain their existing capital share, repealing the obligation under Regulation 14 for a local shareholder to make a corresponding 20 percent capital injection in the event of a capital increase. In June 2020, OJK issued Regulation 39/2020, which provides for the phased elimination of the domestic cession requirements for purchase of reinsurance from companies domiciled in a country with whom Indonesia has a bilateral agreement. The regulation also phased out the requirement for domestic reinsurance obligations for simple risks by the end of 2020, and for non-simple risks in 2022.

Based on Government Regulation No. 31/2022 issued in September 2022, up to 85 percent of the shares of a joint venture securities company can be owned by a foreign legal entity engaged in finance other than securities. Up to 99 percent of the shares of a joint venture securities company can be owned by a foreign legal entity engaged in securities that has obtained a license or is under the supervision of the capital market regulator in the country of origin.

Indonesia’s vast natural resources have attracted significant foreign investment and continue to offer significant prospects. However, some companies report that a variety of government regulations have made doing business in the resources sector increasingly difficult, and Indonesia now ranks 69th of 78 jurisdictions in the Fraser Institute’s 2020 Mining Policy Perception Index. In 2012, Indonesia banned the export of many raw minerals, dramatically increased the divestment requirements for foreign mining companies, and required major mining companies to renegotiate their contracts of work with the government. While the ban on ore exports did not become effective until 2017, miners may still export ore on the condition they develop smelting facilities. Indonesia banned nickel exports in 2020. Indonesia plans to expand the ban to include copper, bauxite, and other minerals by mid-2023.

Of note for foreign investors, provisions of the regulations require that to export mineral ores, companies with contracts of work must convert to mining business licenses, be subject to prevailing regulations, and must commit to build smelters within the next five years. Also, foreign-owned mining companies must gradually divest 51 percent of shares to Indonesian interests over ten years, with the price of divested shares determined based on a “fair market value” determination that does not consider existing reserves.

In January 2020, the government banned the export of nickel ore for all mining companies, foreign and domestic, in the hopes of encouraging construction of domestic nickel smelters and a down-streaming industry focused on electric vehicles and components. In March 2021, the Ministry of Energy and Natural Resources issued a Ministerial Decision to allow mining business licenses holders who have not reached smelter development targets to continue exporting raw mineral ores under certain conditions. The 2020 Mining Law returned the authority to issue mining licenses to the central government. Local governments only retain authority to issue small scale mining permits. Indonesia required mining companies to renegotiate their contracts of work to include higher royalties, more divestment to local partners, more local content, and domestic processing of mineral ore.

In December 2020, the Ministry of Energy and Natural Resources issued Ministerial Decision No. 255.K/30/MEM/2020 that mandates coal mining companies fulfill 25 percent of its production for Domestic Market Obligation (DMO) and set the maximum price of coal for domestic power generation at $70/ton. In January 2022, the government of Indonesia banned exports of coal for all mining companies due to low DMO fulfillment, given the need to use that coal for domestic electricity generation. The government has lifted the coal export ban and imposed stricter control to allow exports only for coal mining companies that have fulfilled DMO requirements.

Other Investment Policy Reviews

The latest World Trade Organization (WTO) Investment Policy Review of Indonesia was conducted in February 2021 and can be found on the WTO website: directdoc.aspx ( 

The last OECD Investment Policy Review of Indonesia, conducted in 2020, can be found on the OECD website: 

The 2022 UNCTAD Report on ASEAN Investment can be found here:

Business and Human Rights Resource Center’s Reports:

Global Witness country-specific reports can be accessed here: 

List of conflicts related to environmental and human rights involving companies investing in Indonesia can be seen on Environmental Justice can be accessed here: 

Business Facilitation

In February 2021, the Indonesian government issued Government Regulation No. 5/2021, introducing a risk-based approach and streamlined business licensing process for almost all sectors. The regulation classifies business activities into categories of low, medium, and high risk, which will further determine business licensing requirements for each investment. Low-risk business activities only require a business identity number (NIB) to start commercial and production activities. An NIB also serves as the import identification number, customs access identifier, halal guarantee statement (for low risk), and environmental management and monitoring capability statement letter (for low risk). Medium-risk sectors must obtain an NIB and a standard certification. Under the regulation, a standard certificate for medium-low risk is a self-declared statement that certain business standards were fulfilled, while a standard certificate for medium-high risk must be verified by the relevant government agency. High-risk sectors must apply for full business licenses, including an environmental impact assessment (AMDAL). A business license remains valid while the business operates in compliance with Indonesian laws and regulations. A grandfather clause applies to existing businesses that have obtained business licenses.

Guidance on the business application process through the Risk-Based OSS can be found at  The OSS system is an online portal which allows foreign investors to apply for and track the status of licenses and other services online. Foreign investors are generally prohibited from investing in MSMEs in Indonesia, although Presidential Regulation No. 10/2021 opened some opportunities for partnerships in farming, two- and three-wheeled vehicles, automotive spare parts, medical devices, ship repair, health laboratories, and jewelry/precious metals.

According to Presidential Instruction 7/2019, the Ministry of Investment/BKPM is responsible for issuing “investment licenses” (the term used to encompass both NIB and other business licenses) that have been delegated from all relevant ministries and government institutions to foreign entities through the OSS system. BKPM has also been tasked to review policies deemed unfavorable for investors. While the OSS’s goal is to help streamline investment approvals, investments in the mining, oil and gas, and financial sectors still require licenses from related ministries and authorities. Certain tax and land permits, among others, typically must be obtained from local government authorities. Though Indonesian companies are only required to obtain one approval at the local level, businesses report that foreign companies must often seek additional approvals to establish a business. Government Regulation No. 6/2021 requires local governments to integrate their business licenses system into the Risk-Based OSS system and standardize services through a service-level agreement between the central and local governments.

Outward Investment

Indonesia’s outward investment is limited, as domestic investors tend to focus on the large domestic market.  BKPM is responsible for promoting and facilitating outward investment, to include providing information about investment opportunities in other countries. BKPM also uses its investment and trade promotion centers abroad to match Indonesian companies with potential investment opportunities. The government neither restricts nor provides incentives for outward private sector investment. The Ministry of State-Owned Enterprises (BUMN) encourages Indonesian SOEs through the SOE Go Global Program to increase their investment abroad, aiming to improve Indonesia’s supply chain and establish demand for Indonesian exports in strategic markets. According to the United Nation Conference on Trade and Development (UNCTAD), Indonesia recorded USD 3.6 billion outward direct investments in 2021, decreasing 1.25 percent from USD 4.5 billion in 2020.

Indonesia currently has 26 bilateral investment agreements in force. In 2014, Indonesia began to abrogate its existing BITs by allowing the agreements to expire. However, Indonesia ratified a new BIT with Singapore in March 2021, marking the first investment treaty signed and entered into force after years of review. Indonesia reportedly developed a new model BIT which is currently reflected in the investment chapter of newly signed trade agreements.

A detailed list of Indonesia’s investment agreements can be found at: .

Indonesia is a member of the Association of Southeast Asian Nations (ASEAN). In November 2020, 10 ASEAN Member States and five additional countries (Australia, China, Japan, Korea and New Zealand) signed the Regional Comprehensive Economic Partnership (RCEP), representing around 30 percent of the world’s gross domestic product and population. RCEP encompasses trade in goods, services, investment, economic and technical cooperation, intellectual property rights, competition, dispute settlement, e-commerce, SMEs, and government procurement.

Indonesia is actively engaged in bilateral FTA negotiations. Indonesia recently signed trade agreements with Australia, Chile, Mozambique, the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland), and South Korea. Indonesia is currently negotiating Bilateral Trade Agreements with the European Union, United Arab Emirates, Canada, and other countries.

The United States and Indonesia signed a Trade and Investment Framework Agreement (TIFA) on July 16, 1996. This Agreement is the primary mechanism for discussions of trade and investment issues between the United States and Indonesia. The two countries also signed the Convention between the Government of the Republic of Indonesia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income in Jakarta on July 11, 1988.  This was amended with a Protocol, signed on July 24, 1996. There is no double taxation of personal income.

Indonesia is a member the Indo Pacific Economic Framework (IPEF). In May 2022, the United States launched the Indo-Pacific Economic Framework for Prosperity (IPEF) with Australia, Brunei Darussalam, Fiji India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. This framework intends to boost economic activity and investment, promote sustainable and inclusive economic growth, and benefit workers and consumers across the region. The 14 IPEF partners represent 40 percent of global GDP and 28 percent of global goods and services trade. The IPEF launch began negotiations on the following pillars: (1) Trade; (2) Supply Chains; (3) Clean Energy, Decarbonization, and Infrastructure; and (4) Tax and Anti-Corruption.

Indonesia is a member of the OECD Inclusive Framework on Based Erosion and Profit Shifting. The government is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.

Transparency of the Regulatory System

Indonesia’s legal system is based on civil law. The court system consists of District Courts (primary courts of original jurisdiction), High Courts (courts of appeal), and the Supreme Court (the court of last resort). Indonesia also has a Constitutional Court. The Constitutional Court has the same legal standing as the Supreme Court, and its role is to review the constitutionality of legislation. Both the Supreme and Constitutional Courts have authority to conduct judicial review.

According to business contacts, corruption continues to hamper Indonesia’s judiciary, with graft investigations involving senior judges and court staff. Many businesses note that the judiciary is susceptible to influence from outside parties. Certain companies have claimed that the court system often does not provide the necessary recourse for resolving property and contractual disputes and that cases that would be adjudicated in civil courts in other jurisdictions sometimes result in criminal charges in Indonesia.

Judges are not bound by precedent and many laws are open to various interpretations. Government Regulation No. 27/2017 provided incentives for upstream energy development and regulates recoverable costs from production sharing contracts.

Law No.12 of 2011 on the Formulation of Laws and Regulations requires that some ministries are legally obligated to publish the text of their proposed regulations before enactment. Throughout the Indonesian government, ministries develop forward regulatory plans or proposals intended to be implemented within a specified time frames. The government is to make the proposals available to the public and publishes the proposed regulations before enactment. Primary law proposals may be accessed from The House of Representatives website ( ). The public may request information on secondary laws, such as regulations issued by the BKPM, through an internal office memo to all units in the BKPM from the information and documentation officer (PPID). Draft text of proposed regulations is published on the website of the relevant ministry, printed in a federal publication, or directly distributed to interested stakeholders. There is not a period set by law for the proposed regulations to be publicly available before enactment. Stakeholders sometimes note they would like to see improvement in the consultation process for new laws and hope industry view can be taken into account early in the process.

Laws and Regulations on Foreign Direct Investment

FDI in Indonesia is regulated by Law No. 25/2007 (the Investment Law) which was amended by the Omnibus Law of Job Creation. Under the law, any form of FDI in Indonesia must be in the form of a limited liability company with minimum capital of IDR 10 billion (USD 700,000), excluding land and building and with the foreign investor holding shares in the company. The Omnibus Law on Job Creation allows foreign investors to invest below IDR 10 billion in technology-based startups in special economic zones. The Law also introduces several provisions to simplify business licensing requirements, reforms rigid labor laws, introduces tax reforms to support ease of doing business, and establishes the Indonesian Investment Authority (INA) to facilitate direct investment. In addition, the government repealed the 2016 Negative Investment List through the issuance of Presidential Regulation No. 10/2021, introducing major reforms that removed restrictions on foreign ownership in hundreds of sectors that were previously closed or subject to foreign ownership caps. Several sectors remain closed to investment or are otherwise restricted. Presidential Regulation No. 10/2021 contains a grandfather clause clarifying that existing investments will not be affected unless treatment under the new regulation is more favorable, or the investment has special rights under a bilateral agreement. The Indonesian government also expanded business activities in special economic zones to include education and health. (See section on limits on foreign control regarding the new list of investments.)  The website of the Indonesia Investment Coordinating Board (BKPM) provides information on investment requirements and procedures:  

Competition and Laws

The Indonesian Competition Authority (KPPU) implements and enforces the 1999 Indonesia Competition Law. The KPPU reviews agreements, business practices, and mergers that may be deemed anti-competitive, advises the government on policies that may affect competition, and issues guidelines relating to the Competition Law. Strategic sectors such as food, finance, banking, energy, infrastructure, health, and education are the KPPU’s priorities. The Omnibus Law on Job Creation and its implementing regulation, Government Regulation No. 44/2021, removes criminal sanctions and the cap on administrative fines, which was set at a maximum of IDR 25 billion (USD 1.7 million) under the previous regulation. Appeals of KPPU decisions must be processed through the commercial court.

Expropriation and Compensation

Indonesia’s political leadership has long championed economic nationalism, particularly concerning mineral and oil and gas reserves. According to Law No. 25/2007 (the Investment Law), the Indonesian government is barred from nationalizing or expropriating an investor’s property rights, unless provided by law. If the Indonesian government nationalizes or expropriates an investors’ property rights, it must provide market value compensation.

Presidential Regulation No. 77/2020 on Government Use of Patent and the Ministry of Law and Human Rights (MLHR) Regulation No. 30/2019 and MLHR Regulation No. 14/2021 on Compulsory Licenses (CL) enable patent right expropriation in cases deemed in the interest of national security or due to a national emergency. Presidential Regulation No. 77/2020 allows a Government of Indonesia agency or Ministry to request expropriation, while MLHR Regulation No. 30/2019 allows an individual or private party to request a CL. The Indonesian government issued Presidential decrees number 100 and number 101 in November 2021 announcing government use of the Remdesivir and Favipiravir Patents to secure what the government determined was a needed COVID-19 drug supply.

Dispute Settlement

ICSID Convention and New York Convention

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) entered into force for Indonesia on October 28, 1968. Indonesia acceded to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards in October 1981.

Investor-State Dispute Settlement

In Indonesia, arbitration is governed by the Arbitration and Alternative Dispute Resolution Law No. 30 of 1999. A total of 1,229 known treaty-based Investor-State Dispute Settlements were documented as of July 2022. The most recent case was documented in 2016. Of the total number of cases, 310 were decided in favor of the State; 240 in favor of the investor; 22 in favor of neither party; 167 cases settled; 113 discontinued. Home states of investors included Australia, India, Netherlands, Saudi Arabia, Singapore, and the United Kingdom.

Indonesia | Investment Dispute Settlement Navigator | UNCTAD Investment Policy Hub 

International Commercial Arbitration and Foreign Courts

Judicial handling of investment disputes remains mixed. Indonesia’s legal code recognizes the right of parties to apply agreed-upon rules of arbitration. Some arbitration, but not all, is handled by Indonesia’s domestic arbitration agency, the Indonesian National Arbitration Body. Supreme Court Regulation No. 1 of 1990 on the Procedure for Foreign Arbitration Awards Enforcement is the authority for Indonesia’s international arbitration awards.

Though U.S. firms have reported that doing business in Indonesia remains challenging, there is not a clear pattern or significant record of investment disputes involving U.S. or other foreign investors. Companies complain that the court system in Indonesia works slowly as international arbitration awards, when enforced, may take years from original judgment to payment.

Bankruptcy Regulations

Indonesia’s commercial code, grounded in colonial Dutch law, has been updated to include provisions on bankruptcy, intellectual property rights, incorporation and dissolution of businesses, banking, and capital markets. Application of the commercial code, including the bankruptcy provisions, remains uneven; the business community complains that this is in large part due to corruption and training deficits for judges and lawyers.

A bankruptcy petition may be filed by the debtor or its creditors, including the central bank, or a public prosecutor. In many cases, the debtor submits a petition for suspension of payment, which allows the debtor with time to prepare a settlement plan to negotiate with creditors. Once a qualified number of creditors approve the settlement plan, the Commercial Court will bind the creditors. This type of binding court judgment is enforceable. If the debtor refuses to comply, police assistance may be invoked to require the losing party to release its assets.

Investment Incentives

Indonesia seeks to facilitate investment through fiscal incentives, non-fiscal incentives, and other benefits. Fiscal incentives are in the form of tax holidays, tax allowances, and exemptions of import duties for capital goods and raw materials for investment. Presidential Regulation No. 10/2021 on investment establishes 245 priority fields that are eligible for tax and other incentives, such as facilitated licensing and land use, to encourage investment in those sectors. The Omnibus Law on Job Creation offers a variety of tax incentives, including eliminating income tax on dividends earned in Indonesia and on certain income, including dividends earned abroad, if they are invested in Indonesia. The Law also exempts dozens of goods and services from value added tax (VAT). (Note: The Constitutional Court required the government to rectify legal concerns regarding the Omnibus Law for the law to remain valid. In response, in December 2022, the government published the Job Creation regulation in lieu of law or Perppu No. 2/2022, which is pending approval by Parliament. End note.) A zero-import duty for incompletely knocked down battery-based electronic vehicles came into effect on February 22, 2022, under MOF Regulation No. 13/2022, which aims to make Indonesia a production base and export hub of electric motor vehicles. The Indonesian government will begin providing incentives for purchase of electric motorcycles that meet a 40 percent local content requirement of $455 on March 20 (for 200,000 new and 50,000 converted bikes).  The government is also reportedly preparing incentives to encourage the development of renewable energy and mining down streaming industries as part of implementing Government Regulation 96/2021 concerning the Implementation of Mineral and Coal Mining Business Activities. However, an issued policy does not yet exist on these incentives. Investment incentives are outlined at

To cope with soaring demand and to improve domestic production of medical devices and supplies amid the COVID-19 pandemic, the government, through BKPM Regulation No. 86/2020, streamlined licensing requirements for manufacturers of pharmaceuticals and medical devices. The Ministry of Health also accelerated product registration and certification for medical devices and household health supplies. Moreover, the Ministry of Trade issued Regulation 28/2020 to relax import requirements for certain medical-related products.

The Ministry of Finance (MOF) issued Regulation No. 92/2021, amended by MOF Regulation No. 164/2022, to accelerate the provision of fiscal facilities on the import of goods needed for handling COVID-19, such as oxygen, laboratory test kits and reagents, virus transfer, medicines, medical equipment, and personal protective equipment; Regulation No. 188/2020 provided exemptions of import duties and taxes on imports of COVID-19 vaccines and goods. Indonesia’s Customs Authority also implemented a “rush handling policy” to speed up the vaccine import process. MOF Regulation 20/2021 and its amendments were issued to increase motor vehicle sales to support the post-pandemic economic recovery by reformulating the sales tax on luxury goods, specifically motor vehicles. Under MOF Regulation No. 141/2021, which was amended by Regulation No. 5/2022, MOF reformulated the sales tax for luxury motor vehicles based on efficiency levels and emissions levels, which aimed to reduce emissions from motor vehicles and to encourage the use of energy-efficient and environmentally friendly motor vehicles. In October 2022, MOF issued Regulation No. 149/2022, which exempts imports of material goods to be processed, assembled, or installed on other goods for export from import duties, value added tax, and sales tax.

Foreign Trade Zones/Free Ports/Trade Facilitation

Indonesia offers numerous incentives to foreign and domestic companies that operate in special economic and trade zones throughout Indonesia. The largest zone is the free trade zone (FTZ) islands of Batam, Bintan, and Karimun, located just south of Singapore. The Omnibus Law on Job Creation and its implementing regulation, Government Regulation No. 41/2021, strengthened and unified the three islands (Batam, Bintan, and Karimun) into one integrated FTZ for the next 25 years to create an international logistics hub to support the industrial, trade, maritime, and tourism sectors. Investors in FTZs are exempted from import duty, income tax, VAT, and sales tax on imported capital goods, equipment, and raw materials. Fees are assessed on the portion of production destined for the domestic market which is “exported” to Indonesia, in which case fees are owed only on that portion. Foreign companies are allowed up to 100 percent ownership of companies in FTZs. Companies operating in FTZs may lend machinery and equipment to subcontractors located outside the zone for two years.

Indonesia also has numerous Special Economic Zones (SEZs), regulated under Law No. 39/2009, Government Regulation No. 1/2020 on SEZ management, and Government Regulation No. 12/2020 on SEZ facilities which was amended by Government Regulation No. 40/2021. These benefits include reduction of corporate income taxes (depending on the size of the investment), luxury tax, customs duty and excise, and expedited or simplified administrative processes for import/export, expatriate employment, immigration, and licensing. Under the Omnibus Law on Job Creation, foreign technology start-up investments located within SEZs are exempt from the minimum investment threshold of IDR 10 billion (USD 700,000), excluding land and buildings. There are minimal export processing requirements within the SEZs. New business activities in the education and health sectors (for which licensing services remain under the central government’s authority) will be allocated by zones and determined by the administrator of the SEZ. The Law lifted limits of imported goods into SEZs but maintained restrictions on specific banned goods in accompanying laws and regulations. It also introduced new tax facilities and incentives for taxpayers in SEZs. As of March 2022, Indonesia has identified twelve SEZs in manufacturing and tourism centers that are operational, and six are under construction.

Indonesian law also provides for several other types of zones that enjoy special tax and administrative benefits. Among these are Industrial Zones/Industrial Estates (Kawasan Industri), bonded stockpiling areas (Tempat Penimbunan Berikat), and Integrated Economic Development Zones (Kawasan Pengembangan Ekonomi Terpadu). Indonesia is home to 135 industrial estates that host thousands of industrial and manufacturing companies. MOF Regulation No. 105/2016 provides several different tax and customs accommodations available to companies operating out of an industrial estate, including corporate income tax reductions, tax allowances, VAT exemptions, and import duty exemptions, depending on the type of industrial estate. Bonded stockpile areas include bonded warehouses, bonded zones, bonded exhibition spaces, duty free shops, bonded auction places, bonded recycling areas, and bonded logistics centers.

Companies operating in these areas enjoy concessions in the form of exemption from certain import taxes, luxury goods taxes, and value-added taxes, based on a variety of criteria for each type of location. Most recently, bonded logistics centers (BLCs) were introduced to allow for larger stockpiles, longer temporary storage (up to three years), and a greater number of activities in a single area. The Ministry of Finance issued Regulation No. 28/2018, providing additional guidance on the types of BLCs and shortening approval for BLC applications. By October 2019, Indonesia had designated 106 BLCs in 159 locations, with plans to approve more in eastern Indonesia. In 2021, the Ministry of Finance and the Directorate General for Customs and Excise (DGCE) updated regulations (MOF Regulation No. 65/2021, which was updated partially by MOF Regulation No. 168/2022 and DGCE Regulation No. 9/2021) to streamline the licensing process for bonded zones. The regulations are intended to reduce processing times and the number of licenses required to open a bonded zone.

Shipments from FTZs and SEZs to other places in the Indonesia customs area are treated similarly to exports and are subject to taxes and duties. Bonded zones have a domestic sales quota of 50 percent of the initial realization amount on export, sales to other bonded zones, sales to FTZs, and sales to other economic areas (unless otherwise authorized by the Indonesian government). Sales to other special economic regions are only allowed for further processing to become capital goods, and to companies with a license from the economic area organizer for the goods relevant to their business.

Performance and Data Localization Requirements

Indonesia expects foreign investors to contribute to the training and development of Indonesian nationals, allowing the transfer of skills and technology required for their effective participation in the foreign companies’ management. Generally, a company can hire foreigners only for positions that the government has deemed open to non-Indonesians. Employers must have training programs aimed at replacing foreign workers with Indonesians. If a direct investment enterprise wants to employ foreigners, the enterprise should submit an Expatriate Placement Plan (RPTKA) to the Ministry of Manpower.

Indonesia made significant changes to its foreign worker regulations in 2021. Government Regulation No. 34/2021, an implementing regulation of the Omnibus Law on Job Creation, on the utilization of foreign workers stipulates specific documents required for the RPTKA and introduces different types of RPTKA for temporary employment (e.g. film production, audits, quality control, inspection and installation of machinery) under six months, employment that does not require payment to the Foreign Worker Utilization Compensation Fund (DKPTKA), and employment in SEZs. Under the regulation, an RPTKAs are not required for commissioners or executives. Foreigners working in technology-based startups are also exempted from the RPTKA requirement for the initial three months. Expatriates can use an endorsed RPTKA to apply with the immigration office in their place of domicile for a Limited Stay Visa or Semi-Permanent Residence Visa (VITAS/VBS). Expatriates receive a Limited Stay Permit (KITAS) and a blue book, valid for up to two years and renewable for up to two extensions without leaving the country. While a technical recommendation from a relevant ministry is no longer required, ministries may still establish technical competencies or qualifications for certain jobs or prohibit the use of foreign workers for specific positions, by informing and obtaining approval from the Ministry of Manpower. Foreign workers who plan to work longer than six months in Indonesia must apply for employee social security and/or insurance.

Government Regulation No. 34/2021 outlines the types of businesses that can employ foreign workers, sets requirements to obtain health insurance for expatriate employees, requires companies to appoint local “companion” employees for the transfer of technology and skill development, and requires employers to facilitate Indonesian language training for foreign workers. Any expatriate who holds a work and residence permit must contribute USD 1,200 per year to the DKPTKA for local manpower training at regional manpower offices. Ministry of Manpower Decree No. 228/2019 details the number of jobs open for foreign workers across 18 sectors, ranging from construction, transportation, education, telecommunications, and professionals. Foreign workers must obtain approval from the Manpower Minister or designated officials to apply for positions not listed in the decree. Some U.S. firms report difficulty in renewing KITASs (residency cards/IDs) for their foreign executives.

Indonesia notified the WTO of its compliance with Trade-Related Investment Measures (TRIMS) on August 26, 1998. The 2007 Investment Law states that Indonesia shall provide the same treatment to both domestic and foreign investors originating from any country. According to industry business contacts, the government pursues policies to promote local manufacturing that could be inconsistent with TRIMS requirements, such as linking import approvals to investment pledges or requiring local content targets in some sectors.

In 2019, Indonesia issued Government Regulation No. 71/2019 to replace Regulation No. 82/2012, further detailed in Ministry of Communication and Information Technology (MCIT) Regulation No. 5/2020, which classifies electronic system operators (ESO) into two categories:  public and private. Public ESOs are either a state institution or an institution assigned by a state institution but not a financial sector regulator or supervisory authority. Private ESOs are individuals, businesses and communities that operate electronic systems. Public ESOs must manage, process, and store their data in Indonesia, unless the storage technology is not available locally. Private ESOs have the option to choose where they will manage, process, and store their data. However, if private ESOs decide to process data outside of Indonesia, they must provide access to their systems and data for government supervision and law enforcement purposes. For private financial sector ESOs, Government Regulation 71/2019 provides that such firms are “further regulated” by Indonesia’s financial sector supervisory authorities regarding the private sector’s ESO systems, data processing, and data storage. Regulation 10/2021, required private sector ESOs, including those providing services on a cross-border basis, to register by July 20, 2022, or be subjected to blocking by MCIT.  Failure to comply with government takedown orders for a potentially broad category of “prohibited electronic information” can also result in blocking. The industry voiced concerns over unclarity of content classifications that will fall under prohibited content and lack of appeal. They further expressed concern about the adjudication mechanism and limited turnaround time for ESOs to respond to MCIT’s takedown request. MCIT plans to use this regulation as a main reference to impose administrative sanctions that will be regulated under the Draft Government Regulation on Non-Tax State Revenue (RPP PNBP).  MCIT also issued Regulation 13/2021 in October, requiring a minimum of 35 percent local content requirement (LCR) for 4G and 5G devices distributed and used in Indonesia starting mid-April 2022. Previously, it was 30 percent.

Additionally, to implement Government Regulation 71/2019, the OJK issued Regulation No. 13/2020 that became effective March 31, 2020. It is an amendment to Regulation No. 38/2016, which allows banks to operate their electronic data processing systems and disaster recovery centers outside of Indonesia, provided that the system receives approval from OJK. OJK issued Regulation 4/2021, amended by OJK regulation No. 11/2022 effective July 2022, that allows some non-bank financial institution data to be transferred and stored outside of Indonesia, subject to OJK approval. Unless approved by OJK, data centers and disaster recovery centers must be in Indonesia. Certain core banking data and non-bank financial institutions’ core systems must also be stored onshore/within Indonesia. OJK will evaluate whether offshore data arrangements could diminish its supervisory efficiency or negatively affect the bank’s performance, and if the data center complies with Indonesia’s laws and regulations. Data may be mirrored or placed in offshore systems, subject to OJK approval, such as for global integrated analysis, global risk management analysis with headquarters, and integrated anti-money laundering and terrorist financing analysis.

Real Property

The Basic Agrarian Law of 1960, the predominant body of law governing land rights, recognizes the right of private ownership and provides varying degrees of land rights for Indonesian citizens, foreign nationals, Indonesian corporations, foreign corporations, and other legal entities. Indonesia’s 1945 Constitution states that all natural resources are owned by the government for the benefit of the people. This principle was augmented by the passage of Land Acquisition Law No. 2/2012, which was amended by the Omnibus Law on Job Creation (Law No. 11/2020), that enshrined the concept of eminent domain and established mechanisms for fair market value compensation and appeals. The National Land Agency registers property under Government Regulation No. 18/2021, though the Ministry of Environment and Forestry (KLHK) administers all “forest land.”  The regulation introduced e-registration to cut bureaucracy and minimize land disputes. Registration is not conclusive evidence of ownership, but rather strong evidence of such. It allows foreigners domiciled in Indonesia to have housing property with land under a “right to use” status for a maximum of 30 years, with extensions available for up to 20 additional years, as well as a “right to own” status for apartments located in special economic zones, free trade zones, and industrial areas. The Omnibus Law on Job Creation aims to reduce uncertainty around the roles of the central and local governments, including around spatial planning and environmental and social impact assessments (AMDALs), by simplifying the licensing process through implementation of a risk-based approach. The Omnibus Law also created a land bank to facilitate land acquisition for priority investment projects.

According to displaced citizens, a lack of clear land titles has impacted Indonesia for decades, although Land Acquisition Law No. 2/2012 includes legal mechanisms designed to resolve some past land ownership issues. The Omnibus Law on Job Creation also created a land bank to facilitate land acquisition for priority investment projects. In January 2022, President Jokowi established a task force to formulate land use policy and conduct mapping of land use on mining, plantation, and forestry activities, and provide recommendations to the Ministry of Investment on revocation of land permits that are not being utilized.

Intellectual Property Rights

Indonesia remains on the priority watch list in the U.S. Trade Representative’s (USTR) Special 301 Report due to the lack of adequate and effective IP protection and enforcement. Per the USTR Special Report, Indonesia’s patent law continues to raise serious concerns, including patentability criteria and compulsory licensing. Indonesia is amending the Patent Law, in addition to the amendment made through the Omnibus Law and hopes for the amendment deliberation to start in 2023. According to industry experts, counterfeiting and piracy are pervasive, IP enforcement remains fragile, and there are continued market access restrictions for IP-intensive industries. According to U.S. stakeholders, Indonesia’s failure to protect intellectual property and enforce IP rights laws has resulted in high levels of physical and online piracy. In recent years, local industry associations have reported large amounts of pirated films, music, and software in circulation in Indonesia, causing potentially billions of dollars in losses. Indonesian physical markets, such as Mangga Dua Market, and online markets Tokopedia and Bukalapak, were included in USTR’s Notorious Markets List in 2022.

The Omnibus Law on Job Creation amended key articles in Patent Law No. 13/2016 and Trademark and Geographical Indications Law No. 20/2016. While Patent Law amendments require the patent holder to exercise their patented invention locally within 36 months after the patent is granted, the new amendments provide flexibility to IP holders to meet local “working” requirements. The new law also revokes a provision requiring patent holders to support technology transfer, investment, and employment in local manufacturing as a condition of patent protection. The law reduces the processing time for simple patent applications from 12 months to 6 months.

In January 2020, Indonesia ratified the Marrakesh Treaty through Presidential Regulation No. 1/2020 to facilitate access to public works for persons who are blind, visually impaired, or otherwise print-disabled. Indonesia also ratified the Beijing Treaty on IPR protection for audiovisual performances to protect actors through Presidential Regulation No. 21/2020 and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure through Presidential Regulation number 44 of 2022. Indonesia deposited its instrument of accession to the Madrid Protocol with the World Intellectual Property Organization (WIPO) in 2017 and issued implementing regulations in 2018. Under the new rules, applicants desiring international mark protection under the Madrid Protocol must register their application with DGIP and be Indonesian citizens, domiciled in Indonesia, or have clear industrial or commercial interests in Indonesia. Although the Trademark Law of 2016 expanded recognition of non-traditional marks, Indonesia still does not recognize certification marks. In response to stakeholder concerns over a lack of consistency in the treatment of internationally well-known trademarks, the Supreme Court issued Circular Letter 1/2017, which advised Indonesian judges to recognize cancellation claims for well-known international trademarks with no time limit stipulation.

Ministry of Finance (MOF) Regulation No. 6/2019 grants the Directorate General of Customs and Excise (DGCE) legal authority to hold shipments believed to contain imitation goods for up to two days, pending inspection. Under Regulation No. 6/2019, rights holders are notified by DGCE (through a recordation system) when an incoming shipment is suspected of containing infringing products. If the inspection reveals an infringement, the rights holder has four days to file a court injunction to request a shipment suspension. Rights holders are required to provide a refundable monetary guarantee of IDR 100 million (USD 6,600) when they file a claim with the court. If the court sides with the rights holder, then the monetary guarantee will be returned to the applicant. DGCE intercepted three suspected infringement product imports in 2022 by using this recordation system, as only 22 trademarks are registered in the recordation system. Despite business stakeholder concerns, the Government of Indonesia retains a requirement that only companies with offices domiciled in Indonesia may use the recordation system.

Trademark, Patent, and Copyright legislation require a rights-holder complaint for investigation. DGIP and BPOM investigators lack the authority to make arrests so must rely on police cooperation for enforcement. DGIP created an IP Enforcement Task Force in late 2021, which includes DGIP, the Indonesian National Policy (INP) Criminal Investigation Agency, DGCE, MCIT, and BPOM. The Task Force is focused on IP Enforcement but is not yet operating in full capacity. More time is needed to evaluate its long-term effectiveness.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at 

For a list of local lawyers, see: .

Capital Markets and Portfolio Investment

The Indonesia Stock Exchange (IDX) index had 825 listed companies as of December 2022, and recorded an all-time high market capitalization of USD 633 billion (IDR 9,499 trillion). Over the past six years, there has been a 53.6 percent increase in the number of listed companies, but the IDX is dominated by its top 50 listed companies, which represent 71.5 percent of the market capitalization. There were 59 initial public offerings in 2022 – five more than in 2021. During the fourth quarter of 2022, domestic entities constituted 66 percent of total IDX stock trades.

Government treasury bonds are the most liquid bonds offered by Indonesia. Corporate bonds are less liquid due to less public knowledge of the product and the shallowness of the market. The government issues sukuk (Islamic treasury notes) as part of its effort to diversify Islamic debt instruments and increase their liquidity. It also issued the first in Southeast Asia Sustainable Development Goals (SDG) bond to fund projects that benefit communities and the environment. This SDG bond was issued in the global capital market, denominated in Euros, and listed in the Singapore and Frankfurt Stock Exchanges. In September 2022, the government successfully issued a global bond in an SEC shelf registered format, becoming the first Asian country to issue global bonds in the U.S. market in 2022. Indonesia’s sovereign credit rating in December 2022 was rated as BBB (investment grade) with a stable outlook by Fitch. In February 2022, Moody’s rated Indonesia at Baa2 with a stable outlook, while Standard & Poor’s rated Indonesia at BBB with a stable outlook in April 2022.

OJK began overseeing capital markets and non-banking institutions in 2013, replacing the Capital Market and Financial Institution Supervisory Board. In 2014, OJK also assumed BI’s supervisory role over commercial banks. Foreigners have access to the Indonesian capital markets and are a major source of portfolio investment. Foreigners held 14.72 percent of government bonds in December 2022, a significant decrease compared to 19.15 percent at the end of 2021. Indonesia respects International Monetary Fund (IMF) Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Money and Banking System

Although, per financial industry experts, there is some concern regarding the operations of the many small and medium sized family-owned banks, the banking system is regarded by industry experts as sound, with banks enjoying some of the widest net interest margins in the region. As of November 2022, commercial banks had IDR 10,874.8 trillion (USD 724.9 billion) in total assets, with a capital adequacy ratio in December 2022 at 25.68 percent. Loans grew by 11.3 percent in 2022, a significant improvement from the 5.24 percent growth rate in 2021, and a 2.4 percent contraction in 2020 due to the COVID-19 pandemic. Gross non-performing loans (NPL) in December 2022 decreased to 2.44 percent from 3 percent the previous year. NPL rates were partly mitigated through a loan restructuring program implemented by OJK as part of COVID-19 recovery efforts.

On March 2020, OJK enacted a credit restructuring policy for all debtors whose businesses are affected by the COVID-19 pandemic, which remained valid until March 31, 2023. OJK issued targeted policies to support specific segments, sectors, industries, and regions requiring an additional restructuring relaxation period of one year until March 31, 2024. The COVID-19 credit restructuring policy continued its downward trend in December 2022, with restructuring loans recorded at USD 31.2 billion (IDR 469.15 trillion), a decrease compared to December 2021 at USD 44.2 billion (IDR 663.49 trillion). Most of the loans were restructured by extending the maturity, delaying payments, or reducing the interest rate, which provided borrowers with temporary liquidity relief. Loans at risk, a broader measure of potential troubled loans than the NPL ratio, decreased from 19.5 percent in December 2021 to 14.05 percent in December 2022.

OJK Regulation No. 56/03/2016 limits bank ownership to no more than 40 percent by any single shareholder, applicable to foreign and domestic shareholders. This does not apply to foreign bank branches in Indonesia. Foreign banks may establish branches if the foreign bank is ranked among the top 200 global banks by assets. A special operating license is required from OJK to establish a foreign branch. The OJK granted an exception in 2015 for foreign banks buying two small banks and merging them. To establish a representative office, a foreign bank must be ranked in the top 300 global banks by assets. OJK regulation No. 12/POJK.03/2021, issued in August 2021, increased the foreign equity cap for commercial banks to 99 percent, subject to OJK evaluation and approval.

On March 16, 2020, OJK issued Regulation No. 12/POJK.03/2020 on commercial bank consolidation. The regulation aimed to strengthen the structure and competitiveness of the national banking industry by increasing bank capital and encouraging consolidation of banks in Indonesia. This regulation increased minimum core capital requirements for commercial banks and Capital Equivalency Maintained Asset requirements for foreign banks with branch offices by at least IDR 3 trillion (USD 209 million), by December 31, 2022.

In 2015, OJK eased rules for foreigners to open a bank account in Indonesia. Foreigners can open a bank account with a balance between USD 2,000-50,000 with just their passport. For accounts greater than USD 50,000, foreigners must show a supporting document such as a reference letter from a bank in the foreigner’s country of origin, a local domicile address, a spousal identity document, copies of a contract for a local residence, and/or credit/debit statements.

Growing digitalization of banking services, spurred on by innovative payment technologies in the financial technology (fintech) sector, complements the conventional banking sector. Peer-to-peer (P2P) lending companies and e-payment services have grown rapidly over the past decade. Indonesian policymakers are hopeful that these fintech services can reach underserved or unbanked populations and micro, small, and medium-sized enterprises (MSMEs). In October 2021, OJK launched a Digital Banking transformation blueprint providing the agency’s policy vision for digital banking that consist of 5 elements: 1) data protection, transfer, and governance, 2) technology governance, architecture, emerging technology, 3) IT risk management, outsourcing, and cybersecurity, 4) platform sharing and cooperation of financial/non-financial institutions, and 5) institutional capacity, culture, leadership, and talent management.

OJK Regulation 77/2016 on peer-to-peer (P2P) lending introduces various guidelines, obligations, and restrictions for P2P lending services, and the organization of P2P lending service providers. This regulation caps foreign ownership of P2P services at 85 percent and mandates data localization. Nonbank financial service suppliers may do business in Indonesia as a joint venture or be partially owned by foreign investors but cannot operate in Indonesia as a branch or subsidiary of a foreign entity. Indonesia issued a moratorium in October 2021 for peer-to-peer (P2P) lending licenses to combat illegal platforms, but OJK has indicated they may lift the moratorium later in 2023, following further analysis. Under OJK Regulation 13/2018, financial technology companies must register with OJK and implement a regulatory sandbox to test new services and business models. In July 2022, OJK issued regulation No. 10/2022 to amend Regulation No. 77/2016 and increase the minimum capital requirements of P2P companies to USD 1.67 million (IDR 25 billion). The foreign ownership cap for P2P services remains at 85 percent. Under the new regulation, if foreign ownership exceeds 25 percent, the company may appoint foreign nationals as Directors and Commissioners, but only up to half of the members of the board may be foreign nationals. As of December 2022, total fintech lending reached USD 35.2 billion (IDR 528 trillion) in cumulative loan disbursements since the beginning with USD 3.4 billion (IDR 51.12 trillion) outstanding and 102 peer to peer lending companies. Payment transactions using e-money in 2022 grew by 30.84 percent year-on-year to USD 26.6 billion (IDR 399.6 trillion). The value of digital banking transactions increased by 28.72 percent year-on-year to USD 3.5 trillion (IDR 52,545.8 trillion). According to the most recent OJK data, published in 2021, only 39 percent of the population use digital banking, therefore significant growth potential remains.

On December 15, the Indonesian Parliament passed the Development and Strengthening of the Financial Sector Omnibus Law, revising 17 laws related to the financial sector.  The goals of the Financial Omnibus Law, as stated by the Ministry of Finance, include strengthening and deepening the sector (making longer-term, lower cost financing available to bolster growth), updating legislation to consider digitalization, protecting consumers and investors, and improving interagency coordination and response to troubled banks.

Major changes implemented by Financial Omnibus Law No. 4/2023 include expanding the mandate of the OJK to include supervision of digital assets, crypto assets, carbon exchanges, certain types of savings cooperatives, and venture capital, in addition to banks, capital markets, insurance, pension funds, and financial technology (fintech). The law also includes provisions on sustainable finance and carbon markets. The mandate of the Deposit Guarantee Agency (LPS) is expanded to guarantee certain types of insurance policies, reimbursing policy holders when an insurance company goes bankrupt, or fails to pay out on its policies, in addition to guaranteeing bank deposits.  LPS will collect contributions from insurance companies to cover its expenses.

Bank Indonesia’s (BI) mandate is expanded to contribute to financial system stability to support sustainable economic growth.  BI is authorized to purchase government bonds on the primary market (directly from the government) when the President declares an economic crisis. In addition, the law revamps one and creates two new supervisory agencies to assist the Indonesian parliament in monitoring the performance of BI, OJK, and LPS. The Financial Omnibus Law makes certain provisions of government regulation permanent in lieu of Law No. 1 of 2020 that were applied temporarily during the pandemic to facilitate rapid restructuring of troubled banks; the law includes provisions to incentivize accumulation of savings and longer-term pension funds for investment; the law establishes a close out netting system for financial derivatives.

The new Financial Omnibus Law authorizes Bank Indonesia to create a central bank digital currency or digital Rupiah in the future and strengthens data sharing amongst the entities of the Financial System Stability Committee (KSSK), namely Ministry of Finance, BI, OJK, and LPS. Bank Indonesia issued a white paper on the digital rupiah at the end of 2022 and published a consultative paper in January to provide an overview of the digital rupiah design for the first stage of its development, which has taken into consideration best practices from several countries on wholesale central bank digital currencies.

Foreign Exchange and Remittances

Foreign Exchange

The rupiah (IDR), the local currency, is freely convertible. Currently, banks must report all foreign exchange transactions and foreign obligations to the central bank, Bank Indonesia (BI). With respect to the physical movement of currency, any person taking rupiah bank notes into or out of Indonesia in the amount of IDR 100 million (USD 6,600) or more, or the equivalent in another currency, must report the amount to the Directorate General of Customs and Excise (DGCE). Taking more than IDR 100 million out of Indonesia in cash requires prior approval from BI. The limit for any person or entity to bring foreign currency bank notes into or out of Indonesia is the equivalent of IDR 1 billion (USD 66,000). Banks, on their own behalf or for customers, may conduct derivative transactions related to derivatives of foreign currency exchange rates, interest rates, and/or a combination thereof. BI requires borrowers to conduct their foreign currency borrowing through domestic banks registered with BI. The regulations apply to borrowing in cash, non-revolving loan agreements, and debt securities.

Under the 2007 Investment Law, Indonesia gives assurance to investors relating to the transfer and repatriation of funds, in foreign currency, on: capital, profit, interest, dividends and other income; funds required for (i) purchasing raw material, intermediate goods or final goods, and (ii) replacing capital goods for continuation of business operations; additional funds required for investment; funds for debt payment; royalties; income of foreign individuals working on the investment; earnings from the sale or liquidation of the invested company; compensation for losses; and compensation for expropriation. U.S. firms report no difficulties in obtaining foreign exchange.

Bank Indonesia issued regulation No. 24/18/PBI/2022 in November 2022 on foreign exchange export proceeds and foreign exchange payments for imports, to support the implementation of BI’s monetary policy in strengthening exchange rate stability through foreign exchange export proceeds, particularly from natural resources being placed in domestic financial markets. BI worked with banks to offer placement options in the form of term deposits with competitive rates starting March 1, 2023, to encourage repatriation of export proceeds. The government is discussing additional regulations which may require repatriation of natural resource export proceeds for a temporary period to boost foreign exchange reserves.

In 2015, the government announced a regulation requiring the use of the rupiah in domestic transactions. While import and export transactions can still use foreign currency, importers’ transactions with their Indonesian distributors must use Rupiah. The central bank may grant a company permission to receive payment in foreign currency upon application, and where the company has invested in a strategic industry.

Bank Indonesia issued Regulation No. 22/12/PBI/2020 on August 27, 2020, regarding settlement for bilateral transactions using local currencies through banks. Local Currency Settlement (LCS) is a settlement of a bilateral transaction between two countries, which is conducted in the respective currency of each country where the settlement is conducted within their jurisdiction. Appointed cross currency dealers facilitate LCS implementation. This initiative aims to lower U.S. dollar domination in bilateral transactions between Indonesia and other countries, lower dependency on the U.S. dollar, and decrease the Indonesian economy’s vulnerability to global shocks. The LCS has been implemented with China, Japan, Malaysia, and Thailand. Total LCS transactions in 2022 reached USD 3.8 billion. The share of transactions using this LCS scheme has reached around 3-4 percent of the total trade transactions in each of these countries. BI will expand LCS cooperation with India and South Korea in the near future.

Remittance Policies

The government places no restrictions or time limitations on investment remittances. However, certain reporting requirements exist. Banks should adopt Know Your Customer (KYC) principles to carefully identify customers’ profiles to match transactions. Indonesia does not engage in currency manipulation.

As of 2015, Indonesia is no longer subject to the intergovernmental Financial Action Task Force (FATF) monitoring process under its ongoing global Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance process. It continues to work with the Asia/Pacific Group on Money Laundering (APG) to further strengthen its AML/CTF regime. In 2018, Indonesia was granted observer status by FATF and is seeking to become a full FATF member.

Sovereign Wealth Funds

The Indonesian Investment Authority (INA), also known as the sovereign wealth fund, was legally established by the 2020 Omnibus Law on Job Creation. INA’s supervisory board and board of directors were selected through competitive processes and announced in January and February 2021. The government initially capitalized INA with USD 2 billion through injections from the state budget and added another USD 4.04 billion from the state budget in October 2021. INA aims to attract foreign equity and invest that capital in long-term Indonesian assets to improve the value of the assets through enhanced management.

During 2022, INA established investment cooperation with Indonesian SOEs Hutama Karya and Waskita Karya on April 14 to accelerate the construction of Trans Sumatera and Java toll roads, then signed an investment framework agreement July 4 with China’s Silk Road Fund to jointly invest in Indonesia. An MOU with SOE port operator Pelindo to transform Belawan Port into Indonesia’s gateway in the Malacca straits was signed on August 25.  BlackRock, INA, Allianz Global Investors, and Orion Capital Asia provided financing to online travel platform Traveloka on September 29. INA, CATL, and CMBI established a green fund focusing on end-to-end electric vehicle value chain investment on November 14 and signed three agreements to retire coal-fired power plants early, as the commitment to accelerate energy transition in Indonesia. INA signed a strategic partnership with pharmaceutical SOEs and the Silk Road Fund on November 29 to improve Indonesian health services. The investment fund for developing countries and INA signed an investment framework agreement on December 6, 2022 to advance the green transition and inclusive social development in Indonesia. In 2023, on February 23, INA and Silk Road Fund SRF officially became the strategic investor of Soes PT Kimia Farma Tbk (KAEF) and PT Kimia Farma Apotek (KFA) by subscribing to KAEF MCB (mandatory convertible bonds) rights offering and acquiring a 40 percent share in its subsidiary, KFA.

Indonesia had 114 state-owned enterprises (SOEs) and 28 subsidiaries divided into 12 sectors, as of December 2019. As of January 2023, those SOEs have been merged into 41 SOEs divided into 12 sectors, and a small number of SOEs have been liquidated due to ineffectiveness. As of December 2022, 27 SOEs were listed on the Indonesian stock exchange. Four subsidiaries of SOEs plan to carry out IPOs in 2023, namely PT Pertamina Geothermal Energy (PGE), PT Pertamina Hulu Energi (PHE), Palm Co, and PT Pupuk Kalimantan Timur (PKT). SOEs hold around USD 600 billion in assets, equivalent to 56 percent of GDP, and contribute around 14 percent of government revenue.

In 2017, Indonesia announced the creation of a mining holding company, PT Inalum. In 2020, three state owned sharia banks were merged. In January 2022, Minister of SOEs, Erick Thohir, stated that in total, nine SOE holding companies will be formed by 2024, including pharmaceutical, insurance, survey services, food industry, manufacturing industry, defense state-owned holdings, the media industry, port services, and transportation and tourism services holding.

Several of these holding companies have already been formed, including pharmaceutical holding (Led by PT Bio Farma, formed in early 2020), Indonesia battery holding (formed on March 26, 2021), Port Service Holding (a merger of PT Pelindo I to Pelindo IV, formed on October 1, 2021), Indonesia Financial Group (IFG) as an insurance holding formed in October 2020, Holding of SOE hotels (Wika as the lead of the holding, formed in December 2020), Ultra Micro Holding (BRI, Pegadaian and PNM, formed Sept 13, 2021), Holding of survey services led by Biro Klasifikasi Indonesia formed in December 2021, ID Food or Holding of food SOEs (lead by PT Rajawali Nusantara Indonesia, formed on January 7,2022), In journey as a tourism holding company (PT Aviasi Pariwisata Indonesia, formed on January 13, 2022), and Defend ID as the defense industry holding (with Len Industry as the lead of the holding, formed on March 2). Danareksa holding was formed in July 2022.

Since his appointment by President Jokowi in November 2019, Minister of SOEs Erick Thohir has underscored the need to reform SOEs in line with President Jokowi’s second-term economic agenda. Thohir has noted the need to liquidate underperforming SOEs, ensure that SOEs improve their efficiency by focusing on core business operations, and introduce better corporate governance principles. Thohir has spoken publicly about his intent to push SOEs to undertake initial public offerings (IPOs) on the Indonesian Stock Exchange. He also encourages SOEs to increase outbound investment to support Indonesia’s supply chain in strategic markets, including through acquisition of cattle farms, phosphate mines, and salt mines.

Information regarding SOEs can be found at the SOE Ministry website (  ) (Indonesian language only).

There are also an unknown number of SOEs owned by regional or local governments. SOEs are present in almost all sectors/industries including banking (finance), tourism (travel), agriculture, forestry, mining, construction, fishing, energy, and telecommunications (information and communications).

Indonesia is not a party to the WTO’s Government Procurement Agreement. Private enterprises can compete with SOEs under the same terms and conditions with respect to access to markets, credit, and other business operations. However, many sectors report that SOEs receive strong preference for government projects. SOEs purchase some goods and services from the private sector and foreign firms. SOEs publish an annual report and are audited by the Supreme Audit Agency (BPK), the Financial and Development Supervisory Agency (BPKP), and external and internal auditors.

Privatization Program

While some state-owned enterprises have offered shares on the stock market, Indonesia does not have an active privatization program. The government capitalized Indonesia Investment Authority (INA) with USD 4 billion in state-owned assets to attract equity investments in those assets, which may eventually be sold to investors or listed on the stock market.

Indonesian businesses are required to undertake responsible business conduct (RBC) activities under Law No. 40/2007 concerning Limited Liability Companies. In addition, sectoral laws and regulations have further specific provisions on RBC. According to local industry contacts, Indonesian companies tend to focus on corporate social responsibility (CSR) programs offering community and economic development, and educational projects and programs. This is at least in part, per the industry contacts, caused by the fact that such projects are often required as part of the environmental impact permits (AMDAL) of resource extraction companies, and those companies face domestic and international scrutiny of their operations. As seen in media reporting and industry sources, a large proportion of resource extraction activity occurs in remote and rural areas where government services are reported to be limited or absent;these companies face very high community expectations to provide such services themselves. Despite significant investments – especially by large multinational firms – in CSR projects, businesses have noted that there is limited general awareness of those projects, even among government regulators and officials. Yet, industry experts, a lack of regulations, oversight, and enforcement measures deter stakeholders from more consistently adhering to environment, social, and governance standards (ESG).

The government does not have an overarching strategy to encourage or enforce RBC but regulates each area through the relevant laws (environment, labor, corruption, etc.). Some companies report that these laws are not always enforced evenly. In 2017, the National Commission on Human Rights launched a National Action Plan on Business and Human Rights in Indonesia, based on the UN Guiding Principles on Business and Human Rights.

OJK regulates corporate governance issues, but as seen by international stakeholders, the regulations and enforcement are not yet up to international standards for shareholder protection.

Indonesia does not adhere to the OECD Guidelines for Multinational Enterprises, and it is unknown if the government has encouraged adherence to those guidelines. Many companies claim that the government does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas or any other supply chain management due diligence guidance. Indonesia is an active member of the Extractive Industries Transparency Initiative (EITI). As part of EITI requirement, payment made to governments in the extractive industries are disclosed through a system database managed by the Ministry of Energy and Mineral Resources (ESDM) as it continues to improve data and information transparency.

Climate Issues

As stated in Law No. 7 on tax harmonization, a carbon tax will be implemented gradually in accordance with the roadmap related to the development of carbon markets, achievement of Nationally Determined Contribution (NDC) targets, sector readiness, and economic conditions. The Ministry of State-Owned Enterprise issued Circular Letter No. 6 in 2022, urging Indonesian SOEs to curb their emissions and to appoint a POC to coordinate efforts.  Implementation of a carbon tax began on April 1, 2022 in the coal sector, with a cap and tax scheme at the rate of IDR 30 per kg of carbon dioxide equivalent or IDR 30,000/tCO2e. The Government of Indonesia issued Presidential Regulation No. 98 on October 29, 2021 on carbon pricing and regulation of the carbon market, one of the instruments to meet the government’s obligations in contributing to reducing greenhouse gas emissions and achieving NDC targets. The Ministry of Environment and Forestry (KLHK) finalized implementing regulations on the market mechanism for carbon trading at the end of 2022, but regulatory uncertainty remains on account of ambiguity in the regulations that are still being discussed. Domestic and International investors continue to express significant interest in establishing carbon credit generating projects in Indonesia.

In 2022, The Ministry of Environment and Forestry published a Forest and Land Use Net Sink 2030 strategy to manage emissions from the forest and land use sector.  The strategy highlights increased ambition in curbing emissions from a sector that currently accounts for over 50 percent of Indonesia’s carbon emissions. President Jokowi has also emphasized blue carbon resources, including setting a goal to rehabilitate more than 600k hectares of mangrove forests around Indonesia by 2024, however according to industry contacts, progress to date has been limited.  Indonesia has also successfully implemented timber legality standards, called the Timber Legality Assurance System (SVLK), and received certification from the EU to export timber products under this system. However, the Ministry of Environment and Forestry is faced with new EU regulations to remove deforestation from supply chains and may look to revise regulations to match.

At the Bali G20 Leaders’ Summit in November 2022, President Joko Widodo and leaders of the International Partnership Group (IPG) of likeminded countries, co-led by the United States and Japan, and including Canada, Denmark, the European Union, France, Germany, Italy, Norway, and the United Kingdom, launched a Just Energy Transition Partnership (JETP) developed with Indonesia during its G20 Presidency.  The Indonesian JETP will support a power sector transition in Indonesia, consistent with keeping a 1.5 °C global warming limit within reach.  Under JETP, Indonesia will work, with support from international partners, to develop a comprehensive investment plan to achieve significant new targets and policies to reduce GHG emissions and support impacted communities by 1) peaking total power sector emissions by 2030, shifting its projected emissions peak forward; 2) capping power sector emissions at 290 megatons of CO2 in 2030, down from baseline value of 357 MT CO2; 3) establishing a goal to reach net zero emissions in the power sector by 2050, bringing forward Indonesia’s net zero power sector emissions target by ten years; and 4) accelerating the deployment of renewable energy so that renewable energy generation comprises at least 34 percent of all power generation by 2030, which would roughly double the total renewables deployment over the course of this decade compared to current plans.

The 2022 BloombergNEF Climatescope ranks Indonesia’s power sector 79 out of 107 most attractive markets for energy transition projects investment. MIT Technology Review’s 2022 Green Future Index scores Indonesia 70th of 76 nations across the five pillars of carbon emissions, energy transition, green society, clean innovation, and climate policy.

President Jokowi was elected on a strong good-governance platform, but according to industry contacts and some U.S. companies, his performance on this remains inconsistent. Corruption remains a serious problem in the view of many. The Indonesian government has issued detailed directions on combating corruption in targeted ministries and agencies, and the 2018 release of the updated and streamlined National Anti-Corruption Strategy mandates corruption prevention efforts across the government in three focus areas (licenses, state finances, and law enforcement reform). The Corruption Eradication Commission (KPK) was established in 2002 as the lead government agency to investigate and prosecute corruption. The KPK has taken steps to encourage companies to establish effective internal controls, ethics, and compliance programs to detect and prevent bribery of public officials. By law, the KPK is authorized to conduct investigations, file indictments, and prosecute corruption cases involving law enforcement officers, government executives, or other parties connected to corrupt acts committed by those entities; attracting the “attention and the dismay” of the general public; and/or involving a loss to the state of at least IDR 1 billion (approximately USD 66,000).

In September 2019, the Indonesian House of Representatives (DPR) passed Law No. 19/2019 on the Corruption Eradication Commission (KPK) which revised the KPK’s original charter and reduced the Commission’s independence, limiting its ability to pursue corruption investigations without political interference. The current KPK Commissioner has stated that KPK’s main role will no longer be prosecution, but education and prevention. Government officials have criticized KPK sting operations that target officials charged with corruption. The 2019 changes to the KPK, which increased the Executive branch’s oversight of the institution, preceded a decline in investigation and prosecutions from 153 in 2019 to 75 and 88 in 2020 and 2021, respectively. However, the number of prosecutions increased sharply in 2022 to 133, with the KPK prosecuting several notable cases, including members of the President’s cabinet, Supreme Court justices, and court staff. Revisions made to the Indonesian Criminal Code in December 2022 will go into effect in 2026 and will reduce the punishment for corruption. Historically, politicians convicted of corruption are allowed to hold political office after a set period of time.

The government began prosecuting companies that engage in public corruption under a new corporate criminal liability guidance issued in a 2016 Supreme Court regulation, with the first conviction of a corporate entity in January 2019. Giving or accepting a bribe is a criminal act, with possible fines ranging from USD 3,850 to USD 77,000 and imprisonment up to a maximum of 20 years to life, depending on the severity of the charge. Presidential decree No. 13/2018, issued in March 2018 clarifies the definition of beneficial ownership and outlines annual reporting requirements and sanctions for non-compliance.

Indonesia’s 2022 ranking in Transparency International’s Corruption Perceptions Index fell 14 places to 110 out of 180 countries surveyed, compared to 96 out of 180 countries in 2021. Indonesia’s score of public corruption in the country, according to Transparency International, fell four points, to 34 in 2022 from 38 in 2021 (scale of 0/very corrupt to 100/very clean). Indonesia ranks below neighboring countries Timor Leste, Malaysia, and Brunei.

Indonesia ratified the UN Convention against Corruption in September 2006. However, Indonesia is not yet compliant with key components of the convention, including provisions on foreign bribery. Indonesia has not yet acceded to the OECD Anti-Bribery Convention but attends meetings of the OECD Anti-Corruption Working Group. Several civil society organizations function as vocal and competent corruption watchdogs, including Transparency International Indonesia and Indonesia Corruption Watch.

Resources to Report Corruption

Contact at the government agency or agencies that are responsible for combating corruption:

Komisi Pemberantasan Korupsi (Anti-Corruption Commission)
Jln. Kuningan Persada Kav 4,
SetiabudiJakarta Selatan 12950

Contact at a “watchdog” organization:

Transparency International Indonesia
Jl. Amil No.5, RT.1/RW.4, Pejaten Barat
Pasar Minggu, 12510
Tel: +6221.22792806, +6221.22792807

Indonesia Corruption Watch
Jl. Kalibata Timur IV/D No. 6
Jakarta Selatan 12740
Tel: +6221.7901885 or +6221.7994015

Indonesian authorities continue to aggressively pursue terrorist cells throughout the country, disrupting multiple aspirational plots. Despite these successes, as seen in the media, violent extremist networks, terrorist cells, and lone wolf-style ISIS sympathizers have conducted small-scale attacks against law enforcement, government, and non-Muslim places of worship.

Due to political conflict, foreign investors in Papua face unique challenges. Indonesian security forces occasionally conduct operations against small armed separatist groups, including the Free Papua Movement, a group that is most active in the central highlands region. Low-intensity communal, tribal, and political conflict also exists in Papua and have caused deaths and injuries. Armed groups have attacked and destroyed civilian aircraft and targeted construction and telecom workers. According to media coverage, continued attacks and counter attacks between security personnel and local armed groups have exacerbated the region’s issues with internally displaced persons. Anti-government protests have resulted in deaths and injuries, and violence has been committed against employees and contractors of at least one large corporation in Papua, including the death of foreign citizens, as seen by X report. A New Zealand citizen pilot for privately owned Susi Airlines was taken hostage on February 7, 2023, after his plane was attacked by armed separatists in Nduga, Highland Papua Province, and the armed wing of the Free Papua Movement (OPM) repeatedly warned they would target all foreigners and non-Papuans in the region. As in other democracies, political demonstrations occur throughout Indonesia, but have not been a destabilizing concern for most foreign investors in recent years.

Travelers to Indonesia can visit the U.S. Department of State travel advisory website for the latest information and travel resources:

Companies have reported that the labor market faces several structural barriers, including skills shortages, lagging productivity, restrictions on the use of contract workers, and complicated labor laws. The government has enacted recent significant increases in the minimum wage for many provinces. In the bellwether Jakarta area, the Governor set the 2022 minimum wage to five percent higher than the central government’s; in 2023, the Ministry of Manpower announced a 10 percent across the board increase, making Jakarta’s minimum wage IDR 4,901,798 ($322.05), while the lowest provincial minimum wage in Central Java was IDR 1,958,169 ($128.65). Unions staged frequent, largely peaceful protests across Indonesia in 2022, demanding the government further increase the minimum wage based on the rising costs of essential goods. Labor unions have noted that employers are shifting jobs to Central Java to avoid paying workers higher wages in the Jakarta capital region.

The 2020 Omnibus Law on Job Creation introduced labor reforms, intended to attract investors, boost economic growth and create jobs. The Law aims to make the labor market more flexible to encourage job creation and more formal sector employment, as over half of Indonesia’s workers are in the informal sector. Restrictions on the types of work that can be outsourced were lifted and a new working hours arrangement was established to accommodate jobs in the digital economy era. The Law abolished sectoral minimum wages and reformulated the calculation of minimum wage at the provincial and regency/city level based on economic growth or inflation variables. A new unemployment benefit is now officially part of the public safety net for workers, and severance pay requirements were reduced. The business community’s initial reactions to the law were cautiously optimistic, while labor unions, student groups, and religious organizations staged strikes and protests against the law’s labor reforms. Labor unions cite the loss of limits on temporary employment contracts and expansion of outsourcing flexibility as concerns.

Until the onset of the COVID-19 pandemic, unemployment had remained steady at 4.38 percent. As of August 2022, Statistics Indonesia recorded that the unemployment rate jumped to 5.86 percent, or 8.4 million people, lower than the same period in 2021 which reached 6.49 percent or 9.1 million people. Meanwhile the number of workers who were furloughed or worked in shorter working hours due to COVID-19 was much higher.

Employers note that the skills provided by the education system is lower than that of neighboring countries, and successive Labor Ministers have listed improved vocational training as a top priority. According to business contacts, labor contracts are relatively straightforward to negotiate but are subject to renegotiation, despite the existence of written agreements. Moreover, according to industry contacts, local courts often side with citizens in labor disputes, contracts notwithstanding. On the other hand, some foreign investors view Indonesia’s labor regulatory framework, respect for freedom of association, and the right to unionize as an advantage to investing in the country. Expert local human resources advice is essential for U.S. companies doing business in Indonesia, even those only opening representative offices.

Labor unions are independent of the government; about 12.4 percent of the workforce is unionized as of 2021. The law, with some restrictions, protects the rights of workers to join independent unions, conduct legal strikes, and bargain collectively. Indonesia has ratified all eight of the core ILO conventions underpinning internationally accepted labor norms. The Ministry of Manpower maintains an inspectorate to monitor labor norms, but enforcement is stronger in the formal sector. A revised Social Security Law, which took effect in 2014, requires all formal sector workers to participate. Subject to a wage ceiling, employers must contribute an amount equal to 4 percent of workers’ salaries to this plan. In 2015, Indonesia established the Social Security Organizing Body of Employment (BPJS-Employment), a national agency to support workers in the event of work accident, death, retirement, or old age.

Additional information on child labor, trafficking in persons, and human rights in Indonesia can be found online through the following references:

Child Labor Report: 

Trafficking in Persons Report:

Human Rights Report:

The U.S. International Development Finance Corporation (DFC) and each of its predecessors, the Overseas Private Investment Corporation (OPIC) and Development Credit Authority (DCA), have supported projects in Indonesia for decades, going back as far as since 1974, including in the power generation, financial services, and agricultural sectors. DFC can support private sector investment through long-term debt, equity, political risk insurance, investment guarantees, and grant funding for project development costs. DFC’s largest project to date in Indonesia is the UPC Renewables Sidrap Bayu wind power plant in South Sulawesi, where a USD 120 million investment supported the construction of Indonesia’s first commercial wind farm. In March 2020, DFC approved a USD 190 million loan to Transpacific Networks (TPN) to support the world’s longest subsea telecommunications cable. The cable will directly connect Singapore, Indonesia, and the United States and have the capability to serve several markets in Southeast Asia and the Pacific. DFC investment teams are advancing several projects across the renewable energy, financial services, and digital economy sectors that are on track for commitment in FY2023. In aggregate those projects would double the agency’s exposure in Indonesia, which remains one of the DFC’s priority markets.  The DFC remains interested in projects in the energy, physical infrastructure, critical minerals and mining, agriculture, health, and digital economy sectors.

Indonesia has joined the Multilateral Investment Guarantee Agency (MIGA). MIGA, a part of the World Bank Group, is an investment guarantee agency to insure investors and lenders against losses relating to currency transfer restrictions, expropriation, war and civil disturbance, and breach of contract. In 2018, MIGA provided a loan guarantee to Indonesian state-owned financial institutions and financed a hydroelectric power plant.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country
USG or
statistical source
USG or International
Source of Data:
BEA; IMF; Eurostat;
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($BUSD) 2022 $1,236* 2021 $1,187

* Source for Host
Country Data:
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international
Source of data:
BEA; IMF; Eurostat;
U.S. FDI in partner country ($M USD, stock positions) 2022 N/A 2021 $15,737
Host country’s FDI in the United States ($M USD, stock positions) 2022 N/A 2021 $519
Total inbound stock of FDI as % host GDP 2022 3.34%* 2021 1.8%

*BKPM press release data

There is a discrepancy between U.S. FDI recorded by BKPM and BEA due to differing methodologies.  While BEA recorded transactions in balance of payments, BKPM relies on company realization reports.   BKPM also excludes investments in oil and gas, non-bank financial institutions, and insurance.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment 2021 Outward Direct Investment 2021
Total Inward 259,884 100% Total Outward 95,678 100%
Singapore 71,061 27.3% Singapore 39,702 41.5%
United States 30,335 11.7% France 21,912 23%
Japan 26,571 10.2% PRC (Mainland) 18,539 19.4%
The Netherlands 23,859 9.2% Cayman Islands 3,467 3.6%
PRC, Hong Kong 15,897 6.1% British Virgin Islands 2,944 3%
“0” reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey (CDIS)

Marc Cook,
Economic Section
U.S. Embassy Jakarta

2023 Investment Climate Statements: Indonesia
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