Overseas Business Risk - Indonesia

Information on key security and political risks which UK businesses may face when doing business in Indonesia.

Political and Economic

Overall the political situation in Indonesia is stable. The country has gone through a remarkable transformation over the last 10 years from an authoritarian regime to one of the most free societies in south east Asia. See Freedomhouse.org for details. The transition was turbulent - involving the Asian financial crisis, the fall of a leader who had ruled for 32 years, an overhaul for the political and legislative frame-works, serious ethnic and religious conflict and the devastating 2004 tsunami.

Indonesia has now developed into the third largest democracy in the world with the first direct elections for President being held in 2004. A comprehensive push for decentralisation has seen much power transferred to the regions. President Bambang Yudhoyono became Indonesia's first ever democratically re-elected president with 60% of the vote. He was inaugurated for his second term on 20 October 2009. The overall human rights situation has improved significantly over the last 20 years. However there are ongoing allegations of human rights abuses in Papua and elsewhere in Indonesia. We raise credible reports with the Indonesian authorities. The Indonesian government has made real progress in tackling terrorism since the devastating bomb attacks in Bali in 2002 and subsequent bombings, but the threat of terrorism remains; please refer to the FCO Travel Advice for details.

The justice system in Indonesia has a reputation for slowness and inefficiency and is regarded as a significant problem by many British companies.

The economic situation in Indonesia is also relatively stable. Although Real GDP grew by 6.1% year on year in 2010.. GDP growth of between 6.0-6.6% is predicted for 2011 as Indonesia recovers with other countries in the region. Inflation in 2010 was 5.1%. It continued to climb in the first quarter of 2011 due to high food and fuel prices, while demand recovery is also expected to contribute to a higher inflation rate throughout the year. Although most of the economic indicators show positive results, unemployment and poverty rates remain a problem.

More information on political risk, including political demonstrations is available in FCO Travel Advice.

Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Bribery is illegal in Indonesia and the Government is fully committed to tackling all forms of corruption. In 2002, a Corruption Eradication Commission (KPK) was established to investigate and prosecute alleged offenders and an increasing number of high level officials and businessmen have been taken to court. Public sentiment towards corruption has changed and Indonesians are increasingly less tolerant of corruption.

Despite these efforts, Indonesia ranked 110th in the 2010 Transparency International's corruption perception index (CPI) barely an improvement on the previous year, and corruption remains a regular feature of business life. Companies considering business partnerships should carry out due diligence prior to selecting partners as a means to managing the risk of being affected by fraud or corruption carried out by a third party.

Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in Indonesia and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our Bribery and corruption page.

Terrorism Threat

The Indonesian National Police have been very successful in disrupting and tracking down suspected terrorists. However, a high threat from terrorism persists.

The nature of the terrorism threat in Indonesian continues to evolve, having mutated from Jema’ah Islamiyah (JI) being commonly regarded as the principal threat to Western interests to the emergence of JI-affiliated and offshoot groups as well as autonomous militant groups.

Considered a regional terrorist organisation, Jema'ah Islamiyah is now mainly active in Indonesia and the southern Philippines. Its aim remains to create a unified Islamic state across the region.

Jema'ah Islamiyah and its offshoots are believed to have been responsible for several high-profile attacks, including the bombings of nightclubs and bars in Bali (2002), the JW Marriott Hotel in Jakarta (2003), the Australian Embassy in Jakarta (2004) and three restaurants in Bali (2005).

Since 2002, Indonesian law enforcement counter terrorism operations have arrested over 500 individuals, severely weakening terrorist networks in Indonesia. However, in the last 12 months, many analysts believe that terrorist networks in the country appear to have grown in sophistication and were larger in number and geographical reach than previously believed.

The 17 July 2009 attacks on the JW Marriott Hotel and the Ritz Carlton Hotel in Jakarta, which claimed the lives of 7 people, serve as a reminder that terrorists still have the intent and capability to attack Western, including British interests in Indonesia. The Indonesian National Police counter terrorism response to the attacks led to a number of arrests and deaths, including Noordin Muhammad Top, the leader of a JI splinter group held responsible for many of the terrorist bombings in Indonesia since 2002.

The UK works with Indonesia within international law to prevent terrorist attacks, encouraging law enforcement activities to track down and prosecute those who are responsible. This work also aims to provide better security against attacks and improve the response to incidents.

Read the information provided on our Terrorism threat page

Meeting in the city

Protective Security Advice

Businessmen should be aware that there has been a marked increase in the fraudulent use of stolen or cloned credit cards to purchase goods or services from the UK and elsewhere through the internet. There has also been an increase in the number of bogus web-sites offering products from Indonesia. For such transactions, it is important to first ensure that the companies are legitimate before sending any payment. The age-old maxim holds: "if it sounds too good to be true, it probably is".

Read the information provided on our Protective security advice page

Intellectual Property

Indonesia is a member of the World Intellectual Property Organisation and a party to the Paris Convention for the protection of intellectual property. It is also a signatory of the General Agreements on Tariffs and Trade (GATT) and to its subsidiary agreement, GATS. It recognises the importance of intellectual property protection, and has drawn up a number of bills increasing the protection of intellectual property rights. Indonesia has laws covering patents, copyrights (Law No 19 of 2002) and trademarks. It should be noted however that local implementation remains weak; there is a lack of capacity and enforcement of regulations and this also applies to border controls. British and foreign companies operating in the market have been affected by a number of IP issues including Trade Mark Squatters, Trade Mark Registration Squatters and Counterfeiting.

Read the information provided on our Intellectual Property page.

Organised Crime

We have no evidence of organised crime affecting foreign companies doing business with Indonesia.

Read the information provided on our Organised crime page.