Vulnerable to global trade tensions


LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

The country risk assessments are your North Star metrics to make the right decision for your business and understand the risks in international trade. We have always the best solution for your needs

GDP USD1015.539bn (World ranking 16, World Bank 2017)
Population 263.99mn (World ranking 4, World Bank 2017)
Form of state Republic
Head of government Joko WIDODO (President)
Next elections 2019, presidential and legislative
  • Abundant natural resources (coal, petroleum, and copper ore along with agriculture)
  • Resilient banking system owing to relatively high capital adequacy ratio and low level of NPLs
  • Favorable demographics: large and young population as well as growing middle class
  • Solid public finances and sound fiscal policies
  • Weak legal system
  • Inefficient tax administration and strong informal economy
  • Growth dependent on raw commodity exports, especially to the slowing Chinese economy
  • Serious infrastructure gap compared to regional peers
  • Increasing inequality poses a threat to social cohesion and inclusive economic growth
  • Low levels of educational spending

Robust growth outlook, but beware of downside risks

After having edged up to +5.2% in 2018, economic growth is forecast to stay at around that rate in 2019 as well. The growth pattern with regard to GDP components is also expected to remain similar, with a boost from consumption and investment making up for declining exports (as indicated by monthly figures of export expansion at the start of 2019). Consumer confidence in H1 2019 is somewhat higher than last year and unemployment is projected to decline, albeit not significantly. Both point towards strong consumption. Total investment as a percentage of GDP is on course to increase on the back of substantial infrastructure spending and a generally better business environment. Inflation should remain in check in 2019; we expect average consumer prices to increase by +3%, which is well within the current inflation target range of 3.5% ± 1pp for 2019, with upward pressures from the stable growth environment to remain limited.

However, downside risks from the trade tensions between the U.S. and China increased in May 2019. These tensions were initially expected to be defused from Q2 2019 onwards but have escalated instead, diminishing the prospect of an external trade recovery in 2019. Hence, the Chinese fiscal stimulus package is currently the only potential uplifting external factor for Indonesia.

Meanwhile, the business environment has advanced in recent years, thanks to the introduction of several measures that should encourage private investment, such as improvements in business licensing and a more efficient taxation system. In the latest World Bank Doing Business survey, Indonesia ranked 73rd (up from 115th in 2015), outperforming the regional average, though lagging behind China (46th) and Malaysia (15th). Indonesia also plans to increase investor protection, which would further boost business friendliness. 

Adequate economic policies

The monetary policy of the central bank, Bank Indonesia (BI), is expected to be dovish in 2019, due to the change in the U.S. Fed’s stance from tightening to neutral, providing room for maneuvering for Indonesia. After six interest rate hikes in 2018, and the expected adequate inflation for 2019, a dovish stance of BI seems reasonable in order to support growth amidst rising external risks.

The budgeted fiscal deficit for 2019 is expected to be -1.8% of GDP, a slight increase from 2018, as the government intends to allocate more to infrastructure spending and to the protection of those vulnerable to natural disasters (which is a major internal risk in Indonesia). However, such a deficit would still be reasonable and adequate, especially since public debt stands at a comparatively low 30% of GDP. 

Acceptable external position

The current account deficit is expected to narrow slightly to -2.7% of GDP in 2019, from -3% in 2018. The U.S.-China trade tensions, coupled with the expected fall in prices of rubber, palm oil and coal, will contribute to the weakness of Indonesian exports. Import growth is expected to weaken as well due to the expected moderation of oil prices and infrastructure projects approaching completion. Furthermore, gross external debt as a percentage of GDP is expected to decline by -2pp to an adequate 33%. Meanwhile, Indonesia’s current foreign exchange reserves are sufficient to cover almost nine months of imports, which is a comfortable buffer in the event of an external shock. 

Trade structure by destination/origin

(% of total)

Exports Rank Imports
China 12%
23% China
United States 11%
15% Singapore
Japan 11%
9% Japan
Singapore 8%
6% Thailand
India 7%
5% Malaysia

Trade structure by product

(% of total)

Exports Rank Imports
Fixed vegetable oils and fats, crude, refined or fractionated 12%
13% Petroleum, petroleum products and related materials
Coal, coke and briquettes 10%
6% Electrical machinery, apparatus and appliances, n.e.s.
Articles of apparel & clothing accessories 5%
6% Other industrial machinery and parts
Gas, natural and manufactured 5%
5% Iron and steel
Miscellaneous manufactured articles, n.e.s. 4%
5% Telecommunication and sound recording apparatus

Payment terms in Indonesia are around 30 days on average. However, the payment behaviour of Indonesian companies has deteriorated in recent years. Domestic law regulates the issue of late payment.​

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

Legal action in Indonesia is usually lengthy and costly while the appeal process provides debtors with an opportunity to further delay the proceedings; therefore conducting orchestrated debt collection efforts is the best option.

The insolvency framework has improved over recent years, so the amount of inconsistent decisions which used to be rendered has been reduced, but in practice the insolvency system is still to be tested.

Download the entire collection complexity PDF:

Collection complexity Indonesia

pdf | 769.7 KB


Euler Hermes

Economic Research Team

Mahamoud Islam

Senior Economist for Asia 

Each step at your side

View our solution