Building on the achievements since the first OECD Investment Policy Review of Indonesia completed in 2010, this 2nd Review presents an assessment of the investment climate in Indonesia to support the government in its ongoing reform efforts. Based on the OECD Policy Framework for Investment, the Review identifies challenges and opportunities and provides recommendations to increase competitiveness, support growth and ensure investment contributions are widely shared and environmentally sustainable. Chapters cover trends and impact of foreign direct investments (FDI), re-thinking the FDI regime, investor protection and dispute resolution, promoting and enabling responsible business conduct, investment promotion and facilitation, and investment policy and regional development in decentralised Indonesia. The Review places great emphasis on measures to build a sound, transparent and responsible investment environment to support a resilient economic recovery from the COVID-19 pandemic.

Indonesia has made remarkable economic, political and social progress over the past two decades through ambitious reforms. Steady economic growth, sound macroeconomic policies and progress in social protection have raised living standards and reduced poverty in both rural and urban areas. The COVID-19 pandemic has halted this progress and plunged Indonesia into a severe recession with dire economic and social consequences.

This chapter starts with an overview of Indonesia’s development path and summarises the main findings and recommendations of the Investment Policy Review.

This chapter examines the evolution of foreign direct investment (FDI) in Indonesia over the past two decades, its sectoral composition and origin. It also investigates how FDI contributes to key sustainable development priorities, namely global value chain integration, productivity, wages, skills, gender equality and the greening of the economy. The performance of Indonesia is assessed against a group of comparator countries.

This chapter focuses on barriers to entry and operation of foreign investors in Indonesia. It explains why reducing barriers and facilitating operations for investors from abroad matter for Indonesia in a world of global value chains. The chapter analyses Indonesia’s regulatory regime for foreign investors in comparison to its regional peers and worldwide experience, and identifies a number of policy options for consideration by the authorities for improving Indonesia’s attractiveness to foreign direct investment.

This chapter examines the legal frameworks for investment protection and dispute resolution that apply to investors in Indonesia. It focuses on several core investment policy issues – the non-discrimination principle, protections for investors’ property rights and mechanisms for resolving investment disputes – under Indonesian law and Indonesia’s investment treaties. It also addresses the government’s recent policy approaches to data protection and cybersecurity, tackling corruption and public sector reforms. It takes stock of recent achievements, identifies key remaining challenges and proposes recommendations to address them. In terms of investment treaty policy, this chapter provides an overview of Indonesia’s investment treaties, analyses the main substantive protections and investor-state dispute settlement provisions in these treaties and identifies considerations for possible policy reforms.

This chapter focuses on how promoting and enabling responsible business conduct in Indonesia as part of COVID-19 recovery measures could lead to far-reaching and strategic successes for promoting a more sound and sustainable investment climate, upgrading in global supply chains, encouraging the private sector contribution to the Sustainable Development Goals, while also protecting Indonesia’s resources for the future.

This chapter examines investment promotion and facilitation policies in place in Indonesia. It analyses the institutional framework for investment promotion and facilitation, with a particular emphasis on the role and activities of BKPM, Indonesia’s investment promotion focal point, which it benchmarks against other agencies in the world. It highlights key reforms and measures implemented by the government to improve the business environment and facilitate the process for incoming investors as well as to attract foreign investment. It also examines the tax regime and the role of tax incentives for investment in support of foreign investment promotion. The chapter identifies remaining challenges and proposes recommendations to address them.

This chapter examines investment trends and policies in Indonesia at the subnational level. It analyses how Indonesia’s decentralisation reforms have been shaping the investment policymaking landscape. The chapter reviews regional development policies related to investment attractiveness and the responsibilities of subnational governments in improving the business climate, particularly the business licensing process, and in conducting investment promotion activities. It also provides an overview of zone-based policies in Indonesia, with a focus on the Special Economic Zone programme.