Country risk in Indonesia is low to moderate. Indonesia has an investment grade credit rating and an OECD country credit grade of 3. This indicates a low to moderate likelihood that it will be unable or unwilling to meet its external debt obligations (though individual private and sub-sovereign debtors can and do default).
The World Bank’s ease of doing business gauge—which measures regulation and red tape relevant to a domestic small to mid-sized firms—ranks the Indonesian business climate 73rd out of 190 economies. There have been significant improvements across doing business indicators since 2013. But starting a business and enforcing contracts remain somewhat more difficult relative to the regional average.
Risk of expropriation in Indonesia is moderate. The 2009 Mining Law introduced a raft of measures that impact on foreign investment—including domestic processing and majority-ownership divestment requirements. For instance, the divestment regulations stipulate that all foreign miners must divest 51% of shares to Indonesian companies by the tenth year of production. As part of the implementation of the mining law and its implementing regulations, Freeport and Rio have agreed to hand over the majority ownership of the Grasberg mine, the world’s second largest copper mine, to the Indonesian government.
Political risk in Indonesia is low to moderate. However, flare-ups in religious-based and student violence could increase political risks in the coming years. The World Bank ranks Indonesia in the second bottom quartile for all but one dimension of governance. Indonesia lags the regional average on measures of political stability and absence of violence.