The document discusses Indonesia's focus on simplifying business procedures through reducing requirements and times for compliance. While this improved Indonesia's ease of doing business ranking, the document notes that restrictions on trade, investment and policy uncertainty have not declined. It provides several examples showing that Indonesia maintains high import tariffs and restrictions, particularly on imports of services and foreign workers, which negatively impact productivity and competitiveness. The document concludes by recommending Indonesia reduce various restrictions and barriers in order to strengthen the business environment and attract more investment.

1. Indonesia focused its support to businesses on
simplifying procedures.
! Indonesian public service has focused mainly on reducing
procedures and the time and costs for businesses to
comply with them, such as those measured in Doing
Business, and through one-stop services.
"[Indonesia s] EODB ranking jumped,
its stock market index skyrocketed,
inflation was low, the state budget is
safe and ratings have gotten better.
Everything is good. What should we
do?" he [Jokowi] said in the front of
ministers during a Cabinet meeting at
the State Palace in Jakarta on Friday.
The Jakarta Post, January 6, 2018
Source: www.doingbusiness.org
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FOR DISCUSSION PURPOSES ONLY

2. At the same time neither restrictions to trade and
investment nor policy uncertainty have declined.
! Restrictions on accessing sectors (who could produce and
sell what and where) have not declined (e.g. local content
requirements, import tariffs).
! Uncertainty around the rules of the game remained (e.g.
Halal Law, import of pure salt, import of corn, foreign
worker visa).
12,741 central
regulations issued
(2010-2015)
3,000 subnational
regulations refused
cancellation
561 subnational
license issuing
agencies
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FOR DISCUSSION PURPOSES ONLY

3. Note: Malaysia and Thailand have data only up to 2015.
Source: World Bank Staff Calculation on WITS and Indonesian regulations.
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(percentage point change in average MFN applied import tariff)
Indonesia has increased import tariffs more than other
countries, making inputs to production more expensive.
FOR DISCUSSION PURPOSES ONLY

4. Indonesia also heavily restricts imports of services…
Source: OECD
(the indices take values between zero and one, with one being the most restrictive)
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FOR DISCUSSION PURPOSES ONLY

5. …which worsen manufacturing productivity (as
services are key inputs to production).
Source: Duggan et al. (2015)
(Manufacturing TFP changes after a 1 percent increase in the restrictiveness index,
by sector)
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FOR DISCUSSION PURPOSES ONLY

6. Note: The FDI Index is computed by the OECD and consists of four types of measures discriminatory towards FDI: equity restrictions,
screening and approval requirements, restrictions on foreign key personnel, and other operational restrictions (such as limits on
purchase of land or on repatriation of profits and capital). Non-discriminatory measures are also included when they are burdensome
for foreign investors, such as for rules regarding nationality of key personnel/directors.
Source: World Bank staff elaboration on the basis of UNCTAD, World Development Indicators and OECD data.
Indonesia has high FDI restrictions (which associates
with low FDI/GDP).
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7. Source: World Bank staff estimates on the basis of BKPM data and all DNI PerPres
Effects of increasing sectoral FEL to 100% (additional investments in USD mln)
Eliminating foreign equity limits can increase
investments.
FOR DISCUSSION PURPOSES ONLY
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8. Note: All data for 2015 except Thailand, whose data is for 2016.
Source: various domestic sources
Share of foreign workers in total labor force (percentage)
Indonesia also restricts imports of foreign skills to fill
domestic gap…
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FOR DISCUSSION PURPOSES ONLY

9. … and Indonesian companies often cannot find right
professionals.
Note: All Data for 2015.
Source: Authors calculations based on World Bank Enterprise Survey data.
Share of firms that cited inadequate skills in trying to hire each type of worker
(percentage)
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FOR DISCUSSION PURPOSES ONLY

10. In line with these restrictions the competitiveness of
Indonesian businesses has suffered.
Change in performance variables of manufacturing plants due to horizontal
DNI restrictions in specific sub-sector (all plants together)
Source: World Bank staff estimates based on Statistik Industri data
and all DNI PerPres
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FOR DISCUSSION PURPOSES ONLY

11. Indonesian manufacturing performance has deteriorated
Source: World Bank staff calculation based on World Development Indicators
(Manufacturing exports as a share of global exports, percentage points)
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FOR DISCUSSION PURPOSES ONLY

12. FDI inflows to Indonesia have not increased in recent
years…
Source: BKPM and Bank Indonesia
(percentage of GDP)
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FOR DISCUSSION PURPOSES ONLY

13. …FDI is still small relatively to the size of the
Indonesian economy.
Source: World Development Indicators
(FDI inflows as percentage of GDP, average 2016-17)
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FOR DISCUSSION PURPOSES ONLY

14. Strengthening public services that matter to
businesses:
! Reduce restrictions to investments: foreign equity limits
restrictions, local content requirements and SME reservations.
! Reduce import tariff and non tariff barriers.
! Streamline pro-competitive regulations and better sanction
anti-competitive practices by incumbent businesses.
! Reduce policy uncertainty by requiring new regulations to be
vetted by the coordinating ministries and mandating wide
public consultations.
! Improve the skills of managers and skilled professionals by
stimulating training at firms.
! Reduce barriers to recruit talent from abroad to fill temporary
gaps (e.g. KITAs processing).
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FOR DISCUSSION PURPOSES ONLY