Indonesia has witnessed some economic growth in recent years, mainly on the basis of booming private investment and consumption. Foreign investment is on the rise in Indonesia, and there are significant improvements to be seen with regard to the general investment climate. Despite the deregulation process being successfully implemented, investors still point at corruption, red tape and an uncertain legal environment as the main challenges for conducting business in the country. Companies continue to be concerned about concessions based on personal relationships and demands for irregular fees to obtain government contracts, permits or licences.

Positive developments in relation to corruption and investment:

• Indonesia is trying to break a long tradition of corruption by implementing transparent and accountable governance.
• Several politicians, legislators and former ministers have been sentenced on corruption charges under the current President, Susilo Bambang Yudhoyono.
• Indonesia has a relatively open foreign investment regime. Recent reforms have put greater emphasis on improving the business climate, enhancing regional competitiveness, and creating a more vibrant private sector.
• A new Anti-Corruption Bill, if passed, will cover the private sector corruption as well as bribery of foreign public officials, both not currently covered under the legislation.

Risks of corruption:

• Bribery typically occurs during licensing procedures, as the level of bribes is positively correlated to the number of business licences a company must obtain in order to comply with regulations.
• Despite improvements in recent years, tax and customs administrations in Indonesia are perceived by many in the business community as corrupt, and many regulations as onerous.
• Indonesia has a complex regulatory and legal environment that leads many foreign and domestic companies to avoid the justice system. Companies are often advised by legal experts to resolve disputes through arbitration outside Indonesia, because the judicial system operates irregularly and opaquely.