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Worldbox Country Risk Climate May 2026
INDONESIA
Summary
| Overall Risk Score 25/40 (Stable)
Political risk: Stable 6/10 Economic risk: Stable 6/10 Commercial risk: Stable 6/10 Technology risk: Stable 7/10 The risk assessment of a country is made up of four components, being Political, Economic, Commercial and Technological. Each component is scored out of 10 with 1 being the highest risk and 10 the lowest. |
ESG Risk: 6/10 (Stable)
Environmental, social and governance (ESG) |
Political Risk – Stable at 6
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.
President Prabowo’s offer to help mediate between the US and Israeli side and Iran in the Middle East conflict has provoked debate across Indonesia, coming at a time of increased criticism of the president’s approach to foreign policy, according to Al Jazeera. The news outfit cited various analysts as warning that the offer could further alienate Indonesians already wary of the President’s perceived cordial relationship with US President Donald Trump.
It added that Prabowo has faced domestic scrutiny after volunteering to deploy 8,000 Indonesian troops to Gaza as part of an International Stabilization Force under the umbrella of Trump’s Board of Peace – a so-called “international peacekeeping” organisation of which Israel is also a member. Three Indonesian soldiers belonging to the United Nations peacekeeping force were killed in southern Lebanon in March during Israel’s invasion of the country, creating further concern in Indonesia at the President’s foreign policy.
Indonesia does not have any formal diplomatic relations with Israel, and has long supported an independent Palestine. The country was also one of the founding members of the Non-Aligned Movement during the Cold War, and has sought to pursue an independent approach to foreign policy for decades, avoiding becoming too close to the major power blocs.
In addition, many Indonesians sympathise with Iran, partly because of anti-Israel and anti-American sentiment, which has long been high, according to Al Jazeera, quoting Made Supriatma, a visiting fellow with the Indonesia Studies Programme at the ISEAS – Yusof Ishak Institute in Singapore.
However, Al Jazeera quoted another analyst as saying that many Indonesians are likely unaware of what is taking place inside Iran, including the “anti-regime protests” that recently shook the country.
Economic Risk – Stable at 6
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 5.11% in 2025 marking a slight increase over the 5.03% in 2024. 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.
However, the Forum warns that subsidies consume a substantial portion of the state budget, crowding out potential spending in more productive areas. Moreover, the subsidies often lead to inefficiencies, as protected industries may lack the incentive to innovate and compete on a global scale. This creates a risk of subsidy reliance, where firms prioritise lobbying for continued state support over genuine productivity improvements.
The IMF, in its December 2025 Article IV consultation, appeared to recognise the dangers of these subsidies calling for the government to deregulate and implement other ambitious horizontal structural reforms including on infrastructure, reducing trade barriers, and further enhancing global integration – boosting the supply side of the economy and helping generate strong MSMEs, higher FDI and a dynamic private sector. Closing physical, human capital (education and skills) and institutional (governance and anti-corruption) gaps will also be critical to increase long-term growth and lift productivity, concluded the IMF.
In late 2026, the government issued a series of new investment and licensing guidelines for direct investment, replacing a set of similar regulations issued in 2021. The new regulations provide more certainty for investors in identifying their required business licences and timelines. The government has relaxed certain investment requirements (e.g. lower minimum paid-up capital for foreign investment) and enhanced government supervision and enforcement measures, according to HSF Kramer.
Commercial Risk – Stable at 6
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.
Indonesia’s economic freedom score (from the Heritage Foundation) is 65.2, and it ranks 60th in the 2025 Freedom Index, moving down from 53rd place in the 2024 Index. Indonesia is ranked 10th out of 39 countries in the Asia-Pacific region. The country’s economic freedom score is higher than the world and regional averages. Indonesia’s economy is considered “moderately free”, according to the 2025 Index.
Technology Risk – Stable at 7
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.
Indonesia’s digital economy is among the fastest growing in Southeast Asia, projected to exceed $130 billion by 2025, according to a joint report by Google, Temasek, and Bain & Company. The country’s rapid internet penetration—and a young, tech-savvy population are key drivers of this growth.
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 digital economy is expected to reach US$300 billion by 2030, with e-commerce as a major contributor, according to a UN report released in February. The eTrade Readiness Assessment said that Indonesia has already made significant strides in building the foundation for its digital economy thanks to a series of national policies, highlighting the country’s clear intent to use digital trade as a tool for inclusive economic growth.
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 January 2026, officials announced they were prioritising efforts to expand internet access to support education, aiming to provide equal learning opportunities for students from urban centres to remote areas. Internet access facilities are currently available in around 97% of populated areas, although service quality varies significantly. The national average internet speed stands at around 45 Mbps, still below the Southeast Asian average, and the government aims to raise the average to 100 Mbps within the next three years, and to expand 5G networks, which currently cover less than 10% of the country.
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%).
May Bulletin
Political Risk – Stable at 6
President Prabowo is likely to face some difficult challenges this year, balancing fiscal responsibility with his electoral promises to aid poorer Indonesians. Indonesia’s 2026 State Budget, passed by parliament in September 2025, estimated that the country’s deficit would amount to 2.68% GDP. In March 2026, officials warned that the shortfall could breach 3.53% of GDP, past Indonesia’s mandated limit of 3%. The main problem is rising global oil prices, which will cause spending on energy subsidies to balloon. At the same time, slowing global growth and squeezed incomes are likely to hit economic growth, placing downward pressure on tax revenues.
The government has announced measures designed to save on spending – such as cutting public servants’ travel and ordering them to work from home one day a week. However, this will have little impact. The only way to make a real dent in spending would be to cut fuel and energy subsidies, but this will impact millions of lower-income Indonesians suffering higher transport and energy costs. Prabowo is unlikely to take this measure given the widespread unrest seen last year. Cutting subsidies could well bring poorer Indonesians back onto the streets in even greater numbers than was seen in 2025.
The sovereign rating agencies are already alarmed at the state of the country’s finances. In February 2026, Moody’s Ratings cut Indonesia’s outlook from stable to negative, citing concerns over policy stability. During the same month, S&P Global Ratings warned that mounting fiscal pressures could heighten the risk of a sovereign credit rating downgrade, particularly due to rising government debt interest payments. The agency explained that interest payments are very likely to have exceeded the important 15% threshold of government revenue last year and stressed that if this ratio remains above 15% over the longer term, it could prompt a more negative view on Indonesia’s credit rating. The agency currently maintains a stable outlook on Indonesia’s BBB rating.
On a positive note, Indonesia has secured a degree of food security in recent years and is no longer dependent on imported rice, the staple food. The country achieved rice self-sufficiency in 2025 with national production rising by more than 13% to 34.71 million tons, yielding a surplus of 3.52 million tons – the highest in the nation’s history.
Economic Risk – Stable at 6
The central bank believes that domestic demand will help insulate the economy 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. In April, the central bank forecast growth of 5% in 2026.
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 held its benchmark interest rate steady at 4.75% in March, having last cut rates in September 2025. This marks the third consecutive meeting with no change to the 7-day reverse repurchase rate. The decision also left the overnight deposit and lending rates unchanged at 3.75% and 5.50%, respectively. The bank signalled there was little scope for rate cuts ahead given the impact of the war in the Middle East. The central bank will be wary of cutting rates and weakening the rupiah further for fear of the impact on inflation, which reached an annual pace of nearly 3.48% in March, just inside the central bank’s target of maintaining inflation within a range of 2.5% plus or minus one percentage point.
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.
Commercial Risk – 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.
During the same month, S&P Global Ratings said that three of Indonesia’s four big four banks face a stable outlook with reduced credit risks. Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia alongside the wider Indonesian banker sector saw “substantial and sustained improvements in weak loans,” the ratings agency said.
S&P noted pockets of stress in areas such as consumer loans and microfinance, which it said reflects a slower recovery in certain parts of the economy. Banks should have ample pre-provisioning earnings and coverage ratios to manage risks, the agency added.
Technology Risk – Stable at 7
In April 2026, Indonesia and Japan signed co-operation deals in technology and energy valued at over US$23bn. In technology, the two countries plan to build a semi-conductor ecosystem and develop artificial intelligence capabilities in Indonesia.
Environmental, Social and Governance (ESG) – Stable at 6
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. Over 6 million people in Jakarta were reportedly affected by acute respiratory infections due to worsening air pollution in 2025. The burning of waste is a major contributor to air pollution with more than half of Indonesian households still burning their rubbish, often because bulky or inorganic waste isn’t collected and dumping it creates safety risks in dense neighbourhoods. In February 2026, President Prabowo declared a “war on waste” instructing regional authorities – particularly in Bali – to take full responsibility for environmental cleanliness.
Deforestation surged significantly in 2025, rising by 66% compared to 2024 and reversing years of decline. Driven largely by government food security programs, biofuel expansion (B50), and agricultural development, over 260,000 hectares of natural forest were lost, according to Mongabay, an independent media outlet. Key drivers include palm oil, mining, and legal concessions, particularly in Kalimantan and Papua.
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 continues to bring its legal, regulatory, and accounting systems into compliance with international norms and agreements. However, the regulations and enforcement are not yet up to international standards for shareholder protection. Indonesian businesses are required to undertake responsible business conduct (RBC) activities under Law No. 40/2007 concerning Limited Liability Companies.
May Bulletin
Environmental, Social and Governance (ESG) – Stable at 6
In January 2026, the government scrapped a plan to retire a major coal-fired power plant, after having promised for years to do so, reported Mongabay, the conservation and environmental news site. Airlangga Hartarto, the country’s chief economics minister, said that it would be unfeasible to shut down the 660-megawatt Cirebon-1 plant by 2035, which is seven years ahead of its scheduled end of operation. But energy analysts and civil society groups say the decision reflects deeper political and financial resistance to moving away from coal – resistance that could undermine Indonesia’s energy transition at a time when global climate finance is becoming harder to secure.
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
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