Slide 1: I crafted all the bullet points by combining the titles of key recommendations to make sentences.
Indonesia 2016 OECD Economic Survey Jakarta 24 October
2016 OECD ECONOMIC
SURVEY OF INDONESIA
Jakarta, 24 October 2016
Getting the fundamentals right
GDP growth is still strong but has been
% growth, volumes
Source: OECD Economic Outlook database.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Outstanding progress in social outcomes
Selected heath and education indicators over the long term
Source: World Bank, Word Development Indicators.
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Gross enrolment ratio, secondary, both sexes (%) (left scale)
Mortality rate, under-5 (per 1,000) (right scale)
The business environment is improving
1. Rankings of the subcomponents of Indonesia’s Ease of Doing Business (EDB) index.
Source: World Bank, Ease of Doing Business.
Ease of Doing Business: aggregate and subcomponents
Rank 2015 and 20161
Starting a Business
Dealing with Construction Permits
Protecting Minority Investors
Trading Across Borders
The government’s 13 reform packages will go a long way to further
improving the business environment.
Regulatory impediments remain
1. The Services Trade Restrictiveness Index (STRI) between 0 and 1, with 1 being the most
restrictive. 2. Emerging markets are an average of Brazil, China, Colombia, India, Indonesia,
Russia and South Africa. Source: OECD Services Trade Restrictiveness Index database
Services trade restrictiveness, 20151
INDONESIA OECD Emerging markets ²
The fiscal balance has weakened
General government revenue, expenditure and balance
% of GDP
Source: CEIC database.
Fiscal balance (right scale) Expenditure (left scale) Revenue (left scale)
Legal 3% of GDP deficit limit
If growth disappoints, employ a prudent monetary response to stabilise
output without endangering financial stability.
Tax revenues are low
8Source: World Bank World Development Indicators.
Improve the effectiveness
of tax collection.
Tax Revenue as % of GDP
The tax base is narrow,
the number of tax payers
is low and compliance
Automatic Exchange of
Information will reduce
Tackle labour informality.
0 10 20 30
Low public spending squeezes social
services and infrastructure
Share of Government Revenue % of GDP
Source: World Bank World Development Indicators.
Raise government revenues to fund a longer-term increase in
0 5 10 15 20 25 30 35 40
Redirection of spending reflects the
Change in government spending
Difference between 2014 and 2015, % of total expenditure
subsidies on fuel,
electricity and fertiliser
to fund public priorities.
Source: CEIC database.
-14 -12 -10 -8 -6 -4 -2 0 2 4 6 8
Removing subsidies on
fuel has created space
for increased spending
in priority areas such as
Spending on social assistance is low
Public expenditures on social assistance
latest year, % of GDP1
1. Public social expenditure excluding health and old-age spending.
Source: OECD Social Expenditure database.
8 Streamline social
assistance and integrate
social security payments
with the income tax system.
Boost funding for the most
efficient measures, such as
conditional cash transfers.
Continue efforts to create a
unified database of
Despite progress important health
Source: International Food Policy Research Institute Global Hungry Index database; World Bank
World Development Indicators database.
Prevalence of stunting in children under five years (%)
Focus on those specific weaknesses in Indonesians' health outcomes that
have high economic costs, like child malnutrition and stunting.
The quality of public governance ranks low
Government effectiveness, 2015
1. Government effectiveness percentile rank between 0 and 100.
Source: World Bank Worldwide Governance Indicators.
Specific targets for spending
(20% for education and 5% for
health) are fine. However,
controls on how funds are
spent could be improved.
Move ahead with
budgeting (“money follows
Improve evaluation of
existing and future
But corruption remains the number one
impediment to doing business in Indonesia
14Source: World Economic Forum, Global Competitiveness Report 2015-16
The most problematic factors in doing business in Indonesia, 2015
0 2 4 6 8 10 12
Inefficient government bureaucracy
Inadequate supply of infrastructure
Access to financing
Poor work ethic in labour force
Inadequately educated workforce
Complexity of tax regulations
Foreign currency regulations
Crime and theft
Poor public health
Insufficient capacity to innovate
Restrictive labor regulations
Corruption is still
development and should
be fought by all means.
Support for anti-corruption
agencies is critical.
Including support for
further expanding anti-
corruption activities into
Indonesia faces important environmental
15Source: OECD Green Growth Indicators
Air pollution and CO2 intensity
may get worse due to:
o Increasing reliance on coal;
o Untaxed fossil fuel
o Forest clearing and fires.
Forest clearing also generates
health and biodiversity risks.
Remove remaining energy
subsidies and then begin to
tax CO2 emissions.
Better enforce laws against
1990 1994 1998 2002 2006 2010 2014
Annual concentration of PM2.5 (µg/m³)
Decentralisation to promote regional
The variance in GDP per capita across
provinces is large
% of average national per capita GDP
Source: Statistics Indonesia.
Central Government Sub-national governments
Revenue and expenditure are unbalanced
Revenue and expenditure shares by level of
The large imbalance between
the spending of regional
governments limits the
benefits of decentralisation.
At the same time, the
administrative capacity of
local governments is
Source: Ministry of Finance, Statistics Indonesia; OECD estimates.
In the short-term, expand use
of targeted grants.
In the longer term, increase
regional capacity and then
raise regions revenue
The administrative burden on firms varies
significantly across regions
Cost of a construction permit in major Indonesian cities
As a percentage of income per capita by city
Source: World Bank, Doing Business in Indonesia 2012, January, Washington, DC.
0 50 100 150
Makassar The best performing
regions equal that of
global best practice.
Work with the sub-
to move the regulation
of business to best
o Employment protection discourages formal jobs and skills investment and reinforces
Reduce impediments to hiring and dismissal of workers, and provide incentives
for investment in skills.
o Poor nourishment and exposure to disease have left over one third of all children
under five stunted.
Expand existing programmes to tackle stunting.
o Sub-national governments often underspend their budgets, impeding infrastructure
investment in particular.
Expand assistance to help regions to improve budget planning and
o More special economic zones (SEZs) are to be established, in spite of their limited
success to date.
Experiment with different incentives in special economic zones, including more
flexible labour regulation, with a view to extending proven good practices to the
o Central government transfers cover the entire cost of sub-national governments’
public service payroll.
Revise the system of transfers from central to sub-national governments to
remove the link with payroll.
o The spending mix could by fine tuned.
Eliminate remaining fuel subsidies. Phase out fertiliser subsidies in favour of
investments in irrigation systems, rural infrastructure and research, and direct
cash support for the poorest farmers.
Replace RASKIN with food vouchers for the poorest. Liberalise imports to
reduce food prices.
Continue prioritising infrastructure investment, and reinforce cooperation with
the private sector by promoting further PPPs.
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