Indonesia Continues to Improve Its Business Climate

Indonesia continues to improve its business climate for small and medium-sized businesses as the country carried out three key reforms last year, says the World Bank Group's Doing Business 2019: Training for Reform report which was released on Wednesday, October 31, 2018.

The reforms are a continuation of the country's strong reform agenda, particularly in the past three years, when Indonesia implemented 17 such reforms.

"Indonesia continues to improve the business climate and is narrowing the gap with global best practice in regulating domestic small and medium businesses. The country may also benefit from increasing openness to global investors, skills, and technology to better compete in global markets," said Rodrigo A. Chaves, World Bank Country Director for Indonesia and Timor-Leste.

This year, Indonesia made Starting a Business easier by combining different social security registrations and by reducing the notarization fees in both Jakarta and Surabaya, the two cities measured by Doing Business. Different registration processes were also combined at the one-stop shop in Surabaya. As a result, the time to start a business was reduced by more than three days to 20 days and the cost was reduced to 6.1 percent of income per capita, from 10.9 percent.

Getting Credit was improved by increasing the availability of credit information. This helps reduce information asymmetries, increase access to credit for small firms, lower interest rates, improve borrower discipline, and support bank supervision and credit risk monitoring.

Registering Property was made easier by reducing the time needed to solve land disputes at the first-instance court. Transparency of the land registry was also enhanced in both Jakarta and Surabaya.

Because of the latest reforms, Indonesia's Doing Business score, an absolute measure of a country's progress towards global best practice, improved to 67.96, from 66.54 last year, which is an improvement above the global average. The country is placed 73 in the global ease of doing business rankings.

Indonesia performs well in Resolving Insolvency, with a recovery rate of 65 cents on the dollar, which is almost double the regional average of 35.5 cents. Indonesia ranks 36 in this area. There is room for improvement through reform of the remuneration for insolvency practitioners and increased protection of the interests of dissenting creditors to ensure that they are treated fairly. In Registering Property, there is also room for further improvement by making information on land ownership and maps of land plots publicly available.

Indonesia could also benefit from reforms in areas beyond those covered by the World Bank Group’s Doing Business methodology and which matter substantially to the country’s global competitiveness. Examples include eliminating foreign equity limits, reducing import tariffs, and lowering barriers to hiring highly skilled foreign workers.

The World Bank Indonesia team estimates that eliminating foreign equity limits alone would generate $4 billion and $2 billion in additional foreign and domestic investments, respectively.