241

How Do We Measure Economic Freedom?

See page 471 for an explanation of the methodology
or visit the Index Web site at heritage.org/index.
2012 data unless otherwise noted.
Data compiled as of September 2013.
Quick Facts
Population: 244.5 million
GDP (PPP): $1.2 trillion
6.2% growth in 2012
5-year compound annual growth 5.9%
$4,977 per capita
Unemployment: 6.2%
Ination (CPI): 4.3%
FDI Inow: $19.9 billion
Public Debt: 24.0% of GDP
Economic Freedom Score
Least Most
free free
50
25 75
0 100
0 20 40 60 80 100
Country Comparisons
Freedom Trend
Country
World
Average
Regional
Average
Free
Economies
2010 2011 2012 2014 2013
54
55
56
57
58
59
60
58.5
60.3
58.5
84.1
58.5
I
ndonesias economic freedom score is 58.5, making its
economy the 100th freest in the 2014 Index. Its score is 1.6
points better than last year due to notable improvements in
business freedom, investment freedom, and financial free-
dom that offset small declines in labor freedom and freedom
from corruption. Indonesia is ranked 21st out of 42 countries
in the AsiaPacific region, and its overall score is the same as
the regional average but below the world average.
Over the 20-year history of the Index, Indonesia has advanced
its economic freedom score by about 4 points. This modest
overall score increase has been relatively broad-based, facili-
tated by improvements in six of the 10 economic freedoms
including trade freedom, freedom from corruption, and fiscal
freedom, each of which gained 10 points or more.
Nonetheless, the Indonesian economy continues to be con-
sidered mostly unfree due to the lack of progress in other
critical areas of economic freedom. Indonesia has lagged
in promoting the effective rule of law. The judicial system
remains vulnerable to political interference, and property
rights are not strongly protected. Despite some progress, lin-
gering corruption continues to undermine enforcement of
the rule of law and hampers the realization of Indonesias full
growth potential.
BACKGROUND: Indonesia is the worlds most populous Mus-
lim-majority democracy. Since 1998, when long-standing
authoritarian ruler General Suharto stepped down, Indone-
sias nearly 250 million people have enjoyed a widening range
of political freedoms, and participation in the political pro-
cess is high. President Susilo Bambang Yudhoyono has tried
to address corruption and encourage much-needed foreign
investment, but the weak rule of law remains a major impedi-
ment to attracting capital. As a member of the G-20 and a driv-
ing force within the Association of Southeast Asian Nations,
Indonesia plays a growing role at the multilateral level. The
increasingly modern and diversified economy has recovered
from the global recession.
World Rank: 100 Regional Rank: 21
INDONESIA
242 2014 Index of Economic Freedom
Property Pights
lreedom rom
Corruption
liscul lreedom
Covernment
Spending
8usiness lreedom
Lubor lreedom
Monetury lreedom
1rude lreedom
nvestment lreedom
linunciul lreedom
Business Freedom
Labor Freedom
Monetary Freedom
RCUlATCRY
ffICINCY
CPN
MARkTS
Trade Freedom
Investment Freedom
Financial Freedom
CCVRNMNT
SIZ
Fiscal Freedom
Government Spending
RUl Cf
lAW
Property Rights
Freedom from Corruption
0 20 40 0 80 00
0 20 40 0 80 00
0 20 40 0 80 00
0 20 40 0 80 00
Country World Average Rank Change
1Year
Score
RUl Cf lAW
CCVRNMNT
SIZ
RCUlATCRY
ffICINCY
CPN MARkTS
20.0
+l8.0
+l0.2
+0.l
0.2
l.3
+5.6
+29.8
l0.0
+l0.0
93rd
118th
62nd
13th
139th
146th
78th
102nd
132nd
41st
30.0
28.0
83.4
89.8
54.8
47.8
76.4
74.8
40.0
60.0
0
2.0
0
0.6
4.6
3.0
0.9
0.2
5.0
l0.0
Long-Term Score Change (since 1995)
THE TEN ECONOMIC FREEDOMS
Corruption remains endemic. In 2013, the chief oil-and-gas regulator was arrested on corrup-
tion charges. In 2012, there were several high-profile convictions for bribery and money laun-
dering. The judiciary has demonstrated its independence in some cases, but the court system
remains plagued by corruption and other weaknesses. Property rights are generally respected,
but enforcement is inefficient and uneven.
Despite some progress, overall regulatory efficiency is weak. Launching a business takes more
than a month on average, and licensing requirements cost slightly less than the level of aver-
age annual income. Regulations concerning the creation and termination of employment rela-
tionships are relatively costly. In June 2013, the legislature voted to reduce costly government
subsidies for gasoline and diesel fuel.
Indonesias average tariff rate is only 2.6 percent, but import licensing and quotas further
restrict trade. Foreign investment in several sectors of the economy requires government
approval. The financial sector remains stable, and a Financial Services Authority has been
formed to improve regulatory efficiency. The government has allowed more foreign involve-
ment in the financial sector, although limits remain.
The top individual income tax rate is 30 percent, and the top corporate tax rate is 25 percent.
Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden is 11.8
percent of gross domestic income. Public spending is 19 percent of GDP, and public debt has
fallen to 24 percent of gross domestic output. The government has raised subsidized fuel prices
to help narrow fiscal shortfalls.
INDONESIA
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continued
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