major macro economic indicators
|GDP growth (%)||4.9||5.0||5.2||5.3|
|Inflation (yearly average, %)||6.4||3.5||3.7||3.6|
|Budget balance (% GDP)||-2.5||-2.5||-2.7||-2.5|
|Current account balance (% GDP)||-2.0||-1.8||-1.7||-1.9|
|Public debt (% GDP)||26.9||27.9||28.7||29.2|
- Diverse natural resources (agriculture, energy, mining)
- Highly competitive thanks to low labour costs
- Dynamic tourism industry
- Huge internal market
- Strong banking sector
- Sovereign bonds rated "Investment Grade" by the three main rating agencies
- Low investment rate
- Exports of commodities increasingly dependent on Chinese demand
- Infrastructure shortcomings
- Persistent corruption and lack of transparency
- Very extensive archipelago with numerous islands and diverse ethnic groups and religions
- High unemployment and poverty rates sharpening inter-ethnic tensions
Growth buoyed by internal demand
Growth has so far remained relatively dynamic in 2018, driven by internal and external demand. Private consumption (57% of GDP in 2016) benefits from a young and growing population, with a high urbanisation rate and increasing per capita GDP. This has enabled the emergence of a burgeoning middle class. The moderation of inflation, now in the lower tranche of the central bank target of 4±1%, should sustain this private demand. However, private investment growth will be slowed by Bank Indonesia’s tightening cycle, aiming at anchoring the Indonesian rupiah. Tensions stemming from the US-China trade spat are also set to further dampen investor sentiment, as China is Indonesia’s largest trade partner.Two factors will help to cushion this blow: the infrastructure development programme launched by President Joko Widowo's (225 priority infrastructure projects), as well as reforms to simplify administrative procedures ahead of general elections in 2019.These reforms have already enabled Indonesia to jump 19 places in the World Bank’s Ease of Doing Business Index in 2018, to 72nd place. The three major rating agencies have also upgraded the country to “investment grade” in 2017. However, there is still a long way to go and investment will remain constrained by a sluggish mining sector, which is yet to fully recover from the ban on exporting unrefined ores (in place since 2014), which was lifted in January 2017. Finally, exports comprise 19% of GDP and include predominantly commodities (oil and gas, palm oil, copra, lignite, and copper), as well as simple manufactures (electrical components, automotive, paper, clothing and jewellery). These are expected to slow going forward, leading to a wider trade deficit.
Budget balance under control, but pressure builds on the current account
Constrained by a constitutional limit of 3% for the annual deficit, the Indonesian government has embarked on tax reforms aimed at controlling expenditure and increasing revenues. Subsidies (particularly on energy) have been cut so as to redirect public spending to infrastructure investments. On the income side, the increase associated with the repatriation of funds following the tax amnesty introduced in 2016 (+3.6% of income between 2015 and 2016) is unlikely to enable the government to achieve its aims. This shortage of income could lead to spending cuts. In this context of a controlled public deficit, the public debt is expected to remain low with interest rates falling after the three main rating agencies raised Indonesia's credit rating. Regarding the current account, imbalances will worsen mainly because of the increase in the price of energy imports, with oil making up 20% of total imports in 2017 The balance of trade will also be under pressure from imports growth linked with the government’s investment programme. This resulting current account deficit is largely financed by FDI flows (1.7% of GDP) and portfolio investments (2.0% of GDP), allowing the Indonesian central bank (Bank Indonesia, BI) to accumulate reserves. The rupiah remains dependent on the influx of short-term capital, with 39.5% of rupiah-denominated sovereign bonds held abroad. Pressures on the foreign exchange front led BI to embark on a tightening cycle.
Popular Joko Widowo put to the test by religious and ethnic tensions
Joko “Jokowi” Widowo enjoys great popularity thanks to the economic progress made since the start of his term in office in 2014. Polls present him ahead for the presidential elections set for April 2019, but he is facing competition: Prabowo Subianto (Gerindra Party), supported by ultra-conservative Muslims, was previously a contender in 2014 and is running again. The municipal elections in Jakarta in April 2017 highlighted the country's deepening religious and ethnic tensions. Basuka Tjahja Purnama (known as Ahok), the candidate supported by Jokowi and from the Chinese Christian population, was accused of blasphemy by the ultra-conservative Muslim population, strongly discrediting him in favour of his rival Anis Basedwan, supported by Mr Subianto, who ultimately won. The June 2018 local elections were perceived as a new test for the president in regions accounting for 43% of the total population. The programmes reflected the oppositions and stances of presidential candidates. However, the results of the elections did not provide any strong indications as to the results of the 2019 elections. Indonesia's political landscape is dominated by a hardening anti-terror policy aimed at curtailing the spread of religious fundamentalism in the country.
Last update : September 2018
Standby Letters of Credit constitute a reliable means of payment because a bank guarantees the debtor’s quality and repayment abilities. Furthermore, the Confirmed Documentary Letters of Credit are also considered reliable, as a certain amount of money is made available to a beneficiary through a bank.
SWIFT bank transfers are becoming more popular as an instrument of payment for both international and domestic transactions due to the well-developed banking network in Indonesia.
The first step to recovering a debt is to negotiate the issue with the debtor to attempt to resolve the issue amicably. There is an inherent Indonesian culture and ideology (Pancasila) where amicable settlement is encouraged. Creditors usually issue a summon/warning letter to the debtor, which outlines a statement concerning the debtor’s breach of commitment. The letter also calls for a discussion to determine whether the dispute should be settled through the court system. If the amicable phrase does not result in a settlement, the parties may trigger legal action.
The Indonesian judicial system comprises several types of courts under the oversight of the Supreme Court. Most disputes appear before the courts of general jurisdiction, with the Court of First Instance being the State Court. Appeals from these courts are heard before the High Court (a district court of appeal). Appeal from the High Court, and in some instances from the State Court, may be made to the Supreme Court.
Ordinary legal action may commence when the parties have been unable to reach a compromise during the amicable phase. The creditor may file a claim with the District Court, who is subsequently responsible for serving the debtor with a Writ of Summons. If the debtor fails to appear at the hearing to lodge a statement of defence, the court has discretion to organize a second hearing or to release a default judgment (Verstekvonnis).
Prior to considering the debtor’s defence, as previously mentioned, the court must first verify whether the parties have tried to reach an agreement or amicable settlement through mediation). If the parties have undergone the mediation process, the panel of judges will continue the hearings and the parties’ evidence will be examined. The judge will render a decision and may award remedies in the form of compensatory or punitive damages.
District Court will usually take from six months to a year before rendering a decision in the first instance. The proceedings may take longer when a case involves a foreign party.
Enforcement of a legal decision
When all appeal venues have been exhausted, a domestic judgment becomes final and enforceable. If the debtor does not comply with the judge decision, the creditor may request the District Court to commend execution by way of attachment and sale of the debtor’s assets through public action.
Indonesia is not part to any treaty concerning reciprocal enforcement of judgments, making it highly difficult to enforce foreign judgments in Indonesia, or to enforce Indonesian court decisions abroad. Because foreign judgements cannot be enforced by Indonesian courts within the territory of Indonesia, foreign cases must therefore be re-litigated in the competent Indonesian courts. In such a case, the foreign court judgment may serve as evidence, but this is subject to certain exceptions as regulated by other Indonesian regulations.
There are two main procedures for companies who are experiencing financial difficulties:
Suspension of payments proceedings
This procedure is aimed at companies that are facing temporary liquidity problems and are unable to pay their debts, but may be able to do so at some point in the future. It provides debtors with the temporary relief to reorganize and continue their business, and to ultimately satisfy their creditors’ claims. The company continues its business activities under the management of its directors, accompanied by a court-appointed administrator under the supervision of a judge. The company must submit a composition plan for the creditors’ approval and for ratification by the court. The rejection of the plan by the creditors or the court will result in the debtor’s liquidation.
The objective of liquidation is to impose a general attachment over the assets of bankrupt debtors for the purpose of satisfying the claims of their creditors. It can be initiated by either the debtor or its creditors before the Commercial Court. Following the submission of the petition, the court will summon the debtor and its creditors to attend a court hearing. Once bankruptcy has been declared, the directors of the debtor company lose the power to manage the company, which is transferred to the court-appointed receiver who then manage the bankruptcy estate and the settlement of the debts. The debtor’s assets will be sold by way of public auction by the appointed receiver.