Indonesia recognizes the right to private ownership and establishment and relies on the private sector (albeit often protected), as a principal engine of economic growth. At the same time, State-owned Enterprises (SOEs) play a dominant role in many sectors, including oil and gas, electric power generation and transmission, infrastructure, banking, fertilizer production, and wholesale distribution.

In recent years, Indonesia has promoted competition in some sectors and has decreased the privileges enjoyed by SOEs. The State Ministry for SOEs notes that privatization is an important part of its mandate, but political opposition has effectively hindered attempts to privatize. Some provincial governments have improved management and transparency of provincially owned firms to stem losses and prepare them for possible privatization.

Protection of Property Rights

Indonesia was elevated to the Special 301 Priority Watch List in 2009 because of growing concerns about IPR protection and enforcement in Indonesia as well as new market access barriers on intellectual property products. In particular, U.S. companies have serious concerns that widespread optical disc piracy and counterfeiting of consumer goods, including fake drugs, not only causes significant economic losses for rights holders, but also poses significant health and safety risks. Cable signal piracy and the illegal downloading of copyright works using mobile devices also remain pervasive. In addition, Indonesia has implemented policies that undermine the protection afforded by the country’s IPR regime and thereby increase harm to U.S. rights holders. Two such policies – a regulation issued by the Ministry of Health preventing foreign pharmaceutical companies from registering drugs if they do not manufacture in Indonesia and a regulation issued by BPOM – could severely restrict the registration and availability in Indonesia of pharmaceutical products containing alcohol or ingredients of porcine (pork) origin, including vaccines and products delivered in gelatin capsules. Market access restriction in the film and television sectors aggravates piracy of copyrighted material. The United States continues to raise these concerns with Indonesia and to urge Indonesia to strengthen its IPR protection and enforcement regime.

Transparency of Regulatory System

Indonesia has a tangled regulatory and legal environment that causes many firms, both foreign and domestic, to avoid the justice system. Laws and regulations are often vague and require substantial interpretation by implementing offices, leading to business uncertainty and rent seeking opportunities. Deregulation has been somewhat successful in reducing barriers, creating more transparent trade and investment regimes, and has alleviated, but not eliminated, red tape. The World Bank’s Doing Business 2010 study found that it takes an average of 60 days to start a business in Indonesia, down from 76 days in 2009. Indonesia’s overall Doing Business 2010 global rank was 122^nd of 183 countries, up from 129^th in 2009. Still, U.S. businesses routinely cite transparency problems and red tape as factors hindering operations.

U.S. citizens involved in commercial or property matters should be aware that the business environment is complex, and dispute settlement mechanisms are not highly developed. Local and foreign businesses often cite corruption and ineffective courts as serious problems. Business and regulatory disputes, which would be generally considered administrative or civil matters in the United States, may be treated as criminal cases in Indonesia. It is often difficult to resolve trade disputes.