IBC Papers

Indonesia’s trade policy is facing renewed scrutiny amid global economic pressures, particularly following the proposed 32% U.S. tariff on key Indonesian exports such as electronics, furniture, apparel, and rubber. In response, Indonesia has offered to increase imports from the U.S. by up to $19 billion in a short-term diplomatic effort to rebalance bilateral trade. However, this gesture highlights deeper structural vulnerabilities, especially in the absence of Generalized System of Preferences (GSP) status since 2020. This policy paper underscores the need for a comprehensive reform of Indonesia’s import regime, aligning it with national development agendas like RIPIN, RPJMN 2025–2029, and the President’s Asta Cita, to enhance industrial competitiveness, ensure access to affordable inputs, and support a sustainable trade balance.

The paper presents a three-pronged strategy: Response, focusing on immediate diplomatic and domestic actions; Reform, targeting systemic improvements in tariffs, customs, and sector-specific regulations; and Rebound, leveraging trade risks into long-term gains through deeper regional integration and investment-led growth. Drawing from consultations with the Indonesian Business Council (IBC), the recommendations advocate for a differentiated, sector-based approach to import governance that balances economic resilience with global market integration.

Indonesia enters 2025 in the middle of a cross-fire, facing an increasingly complex economic landscape shaped by both global disruptions and domestic challenges. The nation’s ability to navigate shifting geopolitical dynamics, trade realignments, and technological advancements while addressing structural inefficiencies at home will determine its economic trajectory. The IBC Business Outlook 2025 provides an analysis of these key forces, offering insights to equip businesses and policymakers with the foresight needed to adapt, innovate, and drive sustainable growth.

Indonesia has grappled with maintaining stable credit ratings, often lagging behind its Southeast Asian neighbors. Key factors influencing sovereign ratings include macroeconomic stability, fiscal policies, government debt, and economic performance. However, Indonesia’s dependence on commodities, low tax revenues, regulatory uncertainty, corruption, twin deficits, and shallow financial depth pose significant challenges. To improve its sovereign rating, Indonesia must (i) diversify its economy, (ii) enhance tax collection, (iii) ensure a healthy balance of payments, (iv) strengthen legal transparency, and (v) Maintain effective communication with rating agencies.

Indonesia’s banking sector is vital to the economy but struggles with efficiency issues, such as high interest rates, increased competition from digital advancements, inadequate capital, and non-performing loans. Recent financial sector reforms aim to address these issues by promoting bank consolidation to enhance stability and efficiency. This study highlights that tailored consolidation strategies are essential for Indonesia. Key recommendations include (i) offering tax incentives, (ii) simplifying regulations, (iii) providing capital support, (iv) enforcing antitrust laws, and (v) fostering bank culture integration.

Indonesia’s MSMEs face significant barriers to accessing credit, primarily due to the “missing middle” phenomenon, where they are too large for microfinance but too small and risky for formal financial institutions. Key issues include reliance on traditional collateral, insufficient and fragmented credit information systems, poor credit ratings due to rigid assessments, and low financial and digital literacy among MSMEs. To address these challenges, the paper recommends (i) diversifying collateral assets, such as movable property and intellectual property, (ii) enhancing credit information systems, (iii) improving the credit rating system, and (iv) increasing financial and digital literacy.

Indonesia ranks among the lowest in ASEAN in terms of broad money (M2) to GDP ratio, indicating the shallowness of its financial sector. Key challenges include over reliance on traditional funding sources, insufficient regional financial capacity for public services, unmonetized property assets, and inadequate financing for Micro, Small, Medium Entreprises (MSMEs). To address these issues, innovative financial products are critical: (i) Project Finance Bonds for long-term infrastructure projects, (ii) municipal bonds to fund regional development, (iii) Real Estate Investment Trusts (REITs) to unlock property value; and (iv) partial guarantee schemes to expand support for MSMEs.

To support the leadership of President Prabowo Subianto and Vice President Gibran Rakabuming Raka, IBC proudly presents the white paper titled “15 Policy Package Recommendations to Support the Development Agenda of the President and Vice President of Indonesia 2024 – 2029.” This document maps out challenges across various focus areas and offers strategic policy package recommendations to support delivering 8 Asta Cita Missions, 8 Best Results Programs Fast, 17 Priority Programs, as well as other work programs.

The 15 policy package recommendations are based on the national management framework for a Competitive and Prosperous Indonesia. This framework consists of four main pillars: Economy, Human Resources, Governance, and Innovation, specifically formulated through 15 focus areas. These focus areas cover issues such as resource downstreaming, food estate, bureaucracy digitalization, and advanced technology production. Each policy package recommendation is designed in a modular fashion, allowing readers to select the parts most relevant to their interests and fields independently.

This paper challenges the view of China’s impending economic decline due to property market issues. By examining its past crisis responses, robust property and banking sectors, and economic diversification, it highlights China’s resilience. Supported by strong policies, regulatory frameworks, and investments in technology and green energy, China mitigates property sector risks while maintaining its role as a global growth engine. The study offers a nuanced perspective on China’s economic trajectory and global impact.

The Indonesian Business Council (IBC) embarked on a comprehensive research study to identify strategic policy recommendations aimed at enhancing financial access, inclusivity, and competitiveness in Indonesia’s financial sector. The overarching goal of this research initiative was to bolster the efficiency and stability of Indonesia’s financial landscape, thereby fostering sustainable economic growth and development.​ The research encompassed seven key policy areas that were deemed essential for improving financial development in Indonesia such as financial product innovations, tax reforms, advancement of non-bank institutions, enhancement of credit information and collateral regulations, support for bank consolidations, fiscal and macroeconomic management and NPL management improvement through Asset Management Companies (AMCs).

The study underscored the importance of evidence-based policymaking, stakeholder engagement, and empirical studies to refine and implement these policy recommendations effectively. By addressing these structural challenges and implementing the proposed policy measures, Indonesia aims to enhance its financial competitiveness, attract more foreign investments, reduce borrowing costs, and promote sustainable economic growth. This holistic approach is crucial for overcoming the barriers to financial development and advancing Indonesia’s position in the global economic landscape.​