![[Aggregator] Downloaded image for imported item #114902](https://asiagategroup.com/wp-content/uploads/worldbox-indonesia-slider-9-14-26.jpg "[Aggregator] Downloaded image for imported item #114902")
Worldbox Country Risk Climate August 2026
INDONESIA
Summary
Overall Risk Score
25/40 – Stable (Unchanged)
| Political risk: 6/10 – Stable (Unchanged)
Economic risk: 6/10 – Stable (Unchanged) Commercial risk: 6/10 – Stable (Unchanged) Technology risk: 7/10 – Stable (Unchanged) A country’s risk rating is based on four areas: political, economic, commercial and technological risk. Each area is scored from 1 to 10, where 1 is the highest risk and 10 is the lowest. |
ESG Risk: 6/10 – Stable (Unchanged)
Environmental, social and governance (ESG) risk is increasingly important to companies, investors and consumers across Southeast Asia. Our quarterly country risk reports therefore include a separate ESG score and analysis of each country’s environmental, social and governance performance, along with recent developments. |
Political Risk August Update
Stable at 6
Research from The Carnegie Endowment for International Peace has issued a fascinating report into the dilemmas facing the Indonesian government as it grapples with the fallout from the Middle East conflict. Even if Iran and the USA can reach a lasting peace, it may take months before oil production returns to its former levels in the Middle East, hence energy costs could continue to put upward pressure on inflation for some time. The report says that unlike its neighbours, Indonesia does not face an immediate supply emergency. Officials have stressed that fuel reserves remain within a manageable range and that crude imports can be diversified away from the Middle East, including toward the United States. In addition, coal still accounts for the dominant share of Indonesia’s electricity generation.
The report points out that President Prabowo Subianto is especially unlikely to risk mass unrest over the cost of living. His political outlook, says the report, has been shaped by two major crises: First, the economic mismanagement and political turmoil that undermined the rule of Indonesia’s first president, Sukarno; and second, the 1998 protests, triggered by the Asian Financial crisis, that brought down the three-decade dictatorship of his father-in-law, Suharto. Given these political sensitivities, the government is highly unlikely to make consumers bear the full burden of this shock for as long as possible. But that could put further pressure on government spending and lead to a further erosion of investor confidence in the fiscal management of the economy.
Political Risk – Context
The Republic of Indonesia was created in 1945 after a long period of Dutch colonial rule and Japanese occupation during the Second World War. Indonesia is today the world’s third largest democracy (and largest Muslim democracy). A directly elected president serves as both head of state and of government. There is a maximum two-term (five years per term) limit on the presidency. A directly elected House of Representatives (the lower house of the bicameral People’s Consultative Assembly) acts as a counterweight to the president.
While now a democracy, Indonesia has experienced long periods of authoritarian rule. The mercurial and charismatic dictator Sukarno ruled the country from 1945 to 1967. General Suharto overthrew Sukarno in 1967, ruling until 1998 when he stepped down amid widespread unrest.
The current government is headed by President Prabowo Subianto who was elected in the February 2024 presidential election. Prabowo succeeded President Joko Widodo (popularly known as Jokowi), in October 2024. Prabowo is a former son-in-law of the late dictator Suharto. He was dismissed from the military in 1998 amid allegations of human rights abuses, which he has always denied.
Student protests in Java in July could provide a harbinger of challenging times ahead for President Prabowo. Rising food costs, especially at traditional markets, are provoking discontent among many Indonesians, particularly the poor. The students demanded the government do more to relieve inflationary pressures facing Indonesians. Economic subsidies have kept fuel and energy prices below market value – but the government’s capacity to keep expanding the subsidies is limited. In June, for example, the state-owned company Pertamina, raised gasoline prices by more than 30%. The students are also protesting against alleged economic mismanagement, focusing on the free meals programme. Accounting for around 7% of the government budget, the programme has faced a range of concerns, including food poisoning, insufficient logistics and heavy military involvement.
Much will depend on whether a lasting peace to the conflict between the USA and Iran can be found. Such a development should ensure the resumption of global oil supplies through the Straits of Hormuz although it may take some time before oil prices and hence general inflation begin to ease.
Economic Risk August Update
Stable at 6
The economy grew by a faster than expected 5.61% in the first quarter on an annual basis. It was the fastest growth rate since the third quarter of 2022, supported by a surge of 21.8% in government spending that included holiday bonuses for civil servants and spending for President Prabowo Subianto’s free-meal programme in schools. Growth in household spending, which contributes more than half of Indonesia’s GDP, rose by an annual 5.52% in the quarter, helped by the Muslim holy month of Ramadan. The government is targeting GDP growth of 5.4% in 2026, while Bank Indonesia forecasts growth of 4.9% to 5.7% for the year.
The central bank believes that domestic demand will help insulate the economy in 2026 from any global growth slowdown caused by rising oil prices amid the Middle East conflict. Household consumption is the key driver of economic growth, accounting for over 53–55% of GDP in 2025, supported by government subsidies and policy stimulus. Indonesia is certainly far less exposed to global growth than other countries in the region.
However, many independent analysts believe the economy is deteriorating according to a survey released by the Faculty of Economics and Business at the University of Indonesia in March. It found that 48% of respondents believe the current economic situation has worsened compared with the previous quarter. Another 38% see no improvement or decline, while only 14% believe conditions have improved. Rising food prices and global energy costs, which have begun eroding household purchasing power, are the main concern.
Bank Indonesia has embarked on a rate-hiking cycle to support the rupiah and contain inflation risks stemming from geopolitical volatility. In June, the central bank increased its benchmark seven-day reverse repo rate by 25 basis points to 5.75%. The central bank also raised its overnight deposit facility rate by 25 basis points to 4.75% and its lending facility rate to 6.50%. The decision was consistent with Bank Indonesia’s mandate to maintain rupiah stability amid global uncertainty and was a pre-emptive step to keep inflation within its target range of 1.5%-3.5% for 2026-2027, according to the central bank. The rupiah has been one of Asia’s worst-performing currencies this year, due to the impact of the conflict in the Middle East on the economy and concerns over domestic policymaking. Bank Indonesia has so far raised rates by a cumulative 100 basis points with further hikes likely this year.
Foreign Direct Investment (FDI) into Indonesia slowed sharply in 2025, reaching 900.9 trillion rupiah (US$53.4 billion), up just 0.1% from the year before when FDI increased by 21%. More positively, FDI rose 4.3% in the fourth quarter from a year earlier to 256.3 trillion rupiah for the first growth in three quarters. That compared with a contraction of 8.9% in the third-quarter figures. Officials said the turnaround in the fourth quarter was notable given the global economy was still facing uncertainty and followed anti-government protests in several cities in Indonesia in late August to early September.
Economic Risk – Context
Indonesia is Southeast Asia’s largest economy and ranks 16th globally. It is the world’s fourth most populous country and is often touted as a future economic giant. The country has achieved remarkable economic growth during the past few decades and has achieved middle-income status. It now has ambitions to reach the high-income stage by 2045.
The country remains highly dependent on resources. The agricultural sector contributes 12.5% to the country’s GDP and employs 29% of the active population, while the mining sector also accounts for around 12% of GDP, driven by vast reserves of nickel (crucial for EVs), coal, copper, and tin, making it a global leader in key minerals and a strategic resource hub.
The economy is diversifying successfully however, with the services sector growing to account for around 45% of GDP, with industry making up the remainder.
The economy grew by 5.03% in 2024, the slowest pace in three years. And given the uncertainties facing the global economy, President Prabowo’s ambition of targeting annual growth of around 8% seems highly unlikely for the foreseeable future. Yet Indonesia needs to boost growth to a higher level to become a high-income country and to absorb the millions of workers in the informal economy or without jobs.
The East Asia Forum has highlighted the role of subsidies in Indonesia’s industrial development and their potentially damaging impact. The Forum highlights the fact that Indonesia’s pursuit of economic development has long been closely tied to robust industrial policy. This strategy has regained prominence amid the realignment of global supply chains and a push towards higher-value economic activities, it adds.
There are growing concerns about the direction of the economy under President Prabowo. Prabowo’s high-spending populist policies have widened the fiscal deficit toward its legally mandated ceiling of 3% of GDP. Prabowo’s decision to fire the respected Finance Minister Sri Mulyani Indrawati last September has also affected investor confidence. This has been reflected in a decline in the value of the rupiah, which, by June 2026, had lost 14% of its value since Prabowo took office.
Indonesian share prices have also fallen dramatically in 2026 with the Jakarta Stock Exchange Composite Index nearly halving between January and June. The plunge followed a warning from MSCI that Indonesia may be downgraded from an ‘emerging economy’ to a ‘frontier market’ due to various problems MSCI has identified. The government responded with a reform package in March. However, in June, MSCI delivered another negative verdict on the Indonesian economy, citing concerns about market accessibility, in particular, the lack of transparent and reliable data on stock holdings.
The government’s growing intervention in the economy, via Indonesia’s sovereign wealth fund, Danantara, is also causing unease. In June, Prabowo stunned investors by announcing plans to centralise exports of key commodities, including coal, palm oil and ferroalloys. Critics argue the fund is becoming increasingly politicised. Economist Yose Rizal Damuri of the Center for Strategic and International Studies said Danantara’s expanding responsibilities appear driven by political priorities rather than institutional reform.
Moreover, the government is being affected by fresh corruption concerns. The former Deputy Head of the National Nutrition Agency, Sony Sonjaya, is a suspect in the alleged corruption of Prabowo Subianto’s flagship, US$15-billion free-meals programme. Since the corruption probe began, the government has slashed the budget for the free-meals programme, suspended the opening of new kitchens, and evaluated existing ones for service quality, production capacity and accuracy of beneficiary data.
In March, both Moody’s and Fitch announced ratings outlook downgrades for Indonesia, with the latter citing the “increasing policy uncertainty and erosion of Indonesia’s policy mix consistency and credibility” and the “growing centralization of policymaking authority.”
Commercial Risk August Update
Stable at 6
In its December 2025 Article IV statement, the IMF reported that “the financial system is broadly resilient. Amid a negative credit gap, a near-term accommodative macroprudential stance is appropriate. Looking forward, gradually starting a shift towards a neutral stance as credit growth builds pace would safeguard against potential macro-financial risks.”
However, bad loans at banks have been creeping up since May 2023 on the back of mortgages and vehicle loans, according to CGS International (CGSI). By contrast, working capital and investment loan non-performing loans (NPLs) have continued to trend down over the past two years, according to the investment house. Major banks have showcased cautious and selectiveness in growing their consumer loan segment, CGSI observed in December.
In May, Moody’s announced a cut to Indonesia’s credit rating outlook to negative from stable, citing reduced predictability in policymaking days after MSCI flagged transparency issues that triggered sharp falls in the stock market. In January, MSCI warned that Indonesia could be downgraded to “frontier” market status from “emerging” due to transparency problems. MSCI is conducting a review, due to be completed in June. The January announcement triggered a significant exodus of capital from Indonesia. The benchmark Jakarta Stock Exchange Composite Index lost around $80 billion in market capitalisation over the two trading days following MSCI’s warning.
Commercial Risk – Context
Corruption remains a challenge and acts as a major deterrent to business and investment. Indonesia was ranked 109th (out of 182 countries) in Transparency International’s Corruption Perception Index (CPI) for 2025, with a CPI score of 34 – falling 10 places from the previous year. In terms of the Association of Southeast Asian Nations (ASEAN), Indonesia lies behind Singapore, Malaysia, Brunei and Vietnam and on a par with Laos.
The Heritage Foundation rates Indonesia as partly free and it is ranked 56th in the 2026 Freedom Index, moving down from 53rd place in the 2024 Index. The Heritage Foundation said that significant challenges persist, including systemic corruption, discrimination and violence against minority groups, conflict in Papua, and the politicized use of defamation and blasphemy laws.
Technology Risk August Update
Stable at 7
In May 2026, Indonesia and Japan signed a strategic agreement to enhance defence cooperation between the two countries, with a particular focus on developing military industries and transferring advanced technology. This move comes amidst major shifts in Japan’s defence policy and Indonesia’s efforts to modernize its military.
Technology Risk – Context
The Global Innovation Index (GII), from the World Intellectual Property Organization, is an important index used by countries and multinational companies to assess innovation ecosystems and aid in policymaking and investment decisions.
Indonesia ranked 55th out of 139 countries in the 2025 GII, moving up from 85th place in 2020.
Indonesia jumped 13 places from 77th to 64th out of 193 countries in the E-Government 2024 Survey released by the United Nations Department for Economic and Social Affairs every two years. Indonesia has improved its information and communications technology (ICT) infrastructure and expanded digital literacy programmes to improve access to e-government services, the report said.
The country’s digital economy is the largest and fastest-growing in Southeast Asia, according to the International Trade Administration of the US. It forecasts the digital economy will exceed US$180bin by 2030, driven by a young population, high mobile internet usage, and rapid fintech expansion. Key sectors include e-commerce, digital payments, and transportation, supported by over 220 million users.
Government policies
According to the International Trade Administration of the US, the government has positioned the digital economy as a cornerstone of its broader economic development strategy. Central to this ambition is the “Making Indonesia 4.0” roadmap, which aims to position the country as a leading digital economy by 2030. This plan is underpinned by significant government initiatives, including the “100 Smart Cities” program and the “National Strategy for Artificial Intelligence (2020-2045),” both designed to enhance digital infrastructure, boost innovation, and integrate advanced technologies across various sectors.
Indonesia’s Ministry of Communication and Information Technology (Kominfo) plays a pivotal role in driving these strategies, with a focus on expanding internet access, developing a comprehensive 5G network, and promoting cybersecurity measures. The government also plans to establish a national data centre and strengthen regulatory frameworks to attract more investment in the digital sector.
Infrastructure
In May 2026, Indonesia’s national railway operator, together with PT Solusi Sinergi Digital Tbk and Huawei, signed an agreement to accelerate the implementation of 5G and artificial intelligence technologies in Indonesia’s railway system. The agreement’s primary objective is to improve railway safety, increase operational efficiency, and optimize the passenger experience.
Education and skilled staff
The government mandates 12 years of compulsory education, divided into six years of elementary school, followed by three years each at the junior and senior secondary levels. However, the quality of education varies widely and enrolment is weak, particularly in rural areas. At the university level, only 18.47% of Indonesian university graduates come from STEM fields, far lower than in Malaysia (37.19%), Singapore (34.30%), or India (31.41%).
Environmental, Social and Governance (ESG) August Update
Stable at 6
PT Vale Indonesia, a nickel mining company, has announced that it has secured a $750 million Sustainability-Linked Loan facility, including a $250 million greenshoe option, marking its debut in the syndicated loan market. The facility was supported by 14 international banks and was 1.7 times oversubscribed, reflecting strong lender confidence in PT Vale’s credit profile and ESG-linked growth strategy. The deal highlights the strength of demand for sustainability linked bonds in the region.
Environmental, Social and Governance (ESG) – Context
The United Nations’ Sustainable Development Goals (SDGs) are recognized as a beneficial framework for responsible investment. The Sustainable Development Report from Cambridge University Press assesses the progress of all UN Member States on the SDGs. It provides a useful means of ranking Southeast Asian countries on their ESG progress.
Indonesia is ranked 77 out of 167 in the 2025 report, with a score of 70.2.
Environment: Issues facing Indonesia include deforestation, water pollution from industrial waste and sewage, and air pollution in urban areas. In May, the environmental group Mongbay reported that several European timber firms have cut ties with suppliers linked to deforestation in Indonesia following a 2025 investigation, suggesting that an upcoming European Union regulation is already influencing behaviour ahead of its implementation at the end of 2026. Mongbay cited Auriga – an Indonesian non-governmental organization – that engages in an effort to conserve Indonesian natural resources and the environment as estimating that 58% of deforestation in Indonesia in 2025 occurred legally within concessions or government projects, highlighting the limits of existing regulatory frameworks in addressing forest loss.
Social: The law provides, with some restrictions, for the rights of workers to join independent unions, conduct legal strikes, and bargain collectively. The law prohibits antiunion discrimination. Most workers are not covered by the minimum wage laws. However, the authorities only enforce labour regulations, including minimum wage regulations, in the formal sector, which employs around 4 in 10 workers. Those in the informal sector have few protections.
Governance: Indonesia’s chief economic minister promised increased financial market transparency and improved corporate governance following an exodus of foreign capital from the Jakarta Stock Exchange this year, and sharp falls in the price of equities. The loss of confidence follows a warning by MSCI that a lack of transparency could cause the indexing firm to downgrade the stock market from emerging to frontier market status. MSCI indices act as a critical reference for the global asset management industry. MSCI’s benchmark Emerging Markets Index tracks around US$10 trillion in stocks and exerts massive influence on investor behaviour. Many emerging market funds will simply be forced to withdraw their investments in Indonesia if it is downgraded to frontier status.
Latest economic data
f forecasts
* Worldbox Business Intelligence
Source: International Monetary Fund, unless otherwise stated
Useful Links
https://www.adb.org/countries/indonesia/main
https://www.transparency.org/en/cpi/2021
https://www.imf.org/en/Countries/IDN
https://www.thejakartapost.com/
https://www.abc.net.au/news/topic/indonesia
Source: Worldbox
Global Business Information from Worldbox
Worldbox provides trusted business information on more than 500 million companies across developed and emerging markets.
Access company profiles, credit risk reports, ownership and management details, legal status, financial information and other data to support onboarding, KYB, compliance and risk assessment.
Worldbox data is available through online search, API, Snowflake’s data platform, AWS Marketplace, and AI-ready access through AWS MCP Servers.
Need reliable information on a company or market? Contact Worldbox to discuss your requirements.
 |
 |
 |
 |
Copyright (C) 2026 Worldbox Business Intelligence. All rights reserved.
Our mailing address is:
Worldbox Business Intelligence
Breitackerstrasse 1
Zollikon
Zurich 8702
Switzerland
