Doing business in Indonesia

General background
Indonesia is a collection of over 13,000 islands , of which about half are inhabitated. Sumatra, Java, Sulawesi, Kalimantan and Irian Jaya are the main populated islands. They are generally volcanic and very mountainous, covered by forest and jungle.
Investor considerations
  • Indonesia offers low labor cost combined with a usually strike free environtment.
  • Foreign employers are required to train local employees to ensure transfer of knowledge.
  • Employing expatriates generally incurs high costs.
  • Regional minimum wage requirements are in force.
Political structure
Indonesia is not officially an Islamic state although most Indonesians are muslim. The Indonesian state promotes a philosophy as national policy called Pancasila, which advocate 5 principles:
  • One Supreme God, this is consonant with Islam, Christianity, Hindu and Buddhism. Although the bulk of the population is Moslem, all religions are protected in law. Communism is totally rejected.
  • Humanism. This involves treating all others as human beings, respecting and helping them.
  • National unity. The nation is placed above self interest. The nation's welfare and progress must be the primary goals of individual and organizational activity.
  • Democracy. The rights of citizens are protected.
  • Social Justice. This emphasizes fairness in rendering justice to all, regardless of status differences.

The focus is on economic growth and maintaining stability and harmony among the various ethnic and religious groups rather than the provision of political democracy..

The Repelita, the country's five year business plan, is drafted by Bappenas, The National Development Planning Council, which is charged with economic planning, co-ordination, and implementation and is accountable to the President.

Dutch law provides the basis for Indonesia's legal structure. However, international business laws relating to foreign investment companies, specialized industries, and taxation have recently been developed and are still going through teething problems. As a result, practical application can be difficult, time consuming and inconsistent.

Most of Indonesia's laws do not come from parliament, but are presidential decrees which have the force of a law. Such decrees carry far more weight than those emanating from other sources.

The Indonesian economy has developed considerably over the past 20 years. Up to the recent financial troubles of 1997-98 inflation was under control and ecnonomic growth steady. Indonesia has reduced its dependence on oil exports and diversified its economy in the last decade. But it still remains a relatively poor country with gross inequalities of income between urban and rural areas, and between different islands and ethnic groups.

Indonesia is rich in natural resources such as timber, petroleum products, rubber and textiles. Petroleum products account for about 40%of foreign revenues. Agricultures, in some places still little above subsistence farming, remains a major factor of the economy and employs about half of the population. The manufacturing and service sector are being developed as the government encourages more private investment, industrialization and diversification.

The dominant role of the Chinese minority in the business activities of the country is the sensitive issue. With increasing economic liberalization and privatization, the majority of Moslem Indonesians fear they will be left out in the cold while the Chinese prosper and increase their control of the economy. Ethnic rivalry is always an underlying tension in Indonesia.

Indonesia has developed strong and favorable relationship with the IMF and the World Bank and its current economic problem are starting to adhere to the requirements of IMF loans. 


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