THE LEGATUM PROSPERITY INDEX™ 2016

Bringing Prosperity to Life

Indonesia

Ranked 61st of 149

At a glance

Ranks

61 st on the Legatum
Prosperity Index™

55th
75th
50th
72nd
95th
50th
128th
14th
73rd

SUB-INDEX RANKINGS

In the Prosperity Sub-Index rankings, Indonesia performs best on Social Capital and Governance and scores lowest on the Personal Freedom sub-index.

Visit our Rankings table to see how Indonesia compares to other countries.

Prosperity Gap

The ‘Prosperity Gap’ takes a country's GDP and uses it as the yardstick to measure a nation's expected Prosperity Index ranking.

With substantial surpluses in the Social Capital and Safety & Security sub-indices, Indonesia generates and distributes slightly more prosperity than expected given its wealth level. However, if further gains are to be made, it must address its deficits in Personal Freedom and Business Environment.

Note:
In the chart above, each dot represents a country. The curve shows the general tendency with which prosperity increases as GDP per capita increases. If a country falls below the curve, then we can say that compared to all other countries, it is under-delivering prosperity for its citizens. Likewise, if a country rises above the curve, then we can say that it is over-delivering prosperity for its citizens. Learn more about the Prosperity Gap here.

Alternatively, have a look at the Prosperity Gap view on our Rankings table for a full list of countries and to see how each of them are performing on the various sub-indices.

Commentary

In many aspects, Indonesia is a stranger in Southeast Asia. It is an extensive archipelagic country straddling Asia and Oceania, occupying an area almost three times as big as that of Myanmar, the second largest in the region. Despite the constellation of its over 300 ethnic groups, it hosts the world’s largest Muslim community, 87.2% of the total population, making it one of only two Muslim-majority South East Asian countries together with Malaysia. Besides topping the regional Social Capital rankings, Safety & Security in the country is high, despite IS attacks on Jakarta earlier this year. Crime in particular is low compared to regional peers, though Indonesia's relative stability does come at the expense of personal freedoms. Nevertheless, despite this strength, prosperity in Indonesia is held back by disappointing economic performance that constrains its ambition of becoming a regional leader.

While Social Capital has improved significantly in the last decade, Personal Freedom remains restricted in Indonesia
While Social Capital has improved significantly in the last decade, Personal Freedom remains restricted in Indonesia

Despite complex ethnic composition and the loosely connected geographic distribution, Indonesia has strong civil society. Half of Indonesians volunteered in 2015 and 75 percent gave money to charity, making Indonesia the most altruistic country in the world. This strong social cohesion also chimes with an incredibly high degree of satisfaction with personal relationships. The proportion of Indonesians satisfied with opportunities to make friends and with how they are treated by others both exceed 90 percent. All these suggest a strong sense of community and frequent cooperation at individual level.

This rich social capital no doubts helps bind the people together and facilitates the in generating an orderly society. Indeed, Singapore, with its substantially smaller territory and population, is the only ASEAN country that performs better than Indonesia in terms of Safety & Security. Plateauing at 0.6 per 100,000 people, Indonesia has one of the world’s lowest intentional homicides rate. The police do not ignore minor crime prevention either. Only 10% of Indonesians had their property stolen in 2015 and almost 80% felt safe walking alone at night. The only real challenge to Indonesia's safety comes from radical extremism, with Islamic State claiming responsibility for a bomb attack on Jakarta in January 2016. However, authorities have done an impressive job in containing and thwarting terrorist attacks.

On top of a vigorous civil society and a relatively safe country, Indonesians also benefit from improving democratic governance. In 2014, Indonesians celebrated a new president, Joko Widodo (also known as Jokowi), the first since the country’s independence with no connections to the Suharto and Sukarno families. His election boosted Indonesia’s democratic reputation and brought fresh air to the country’s nepotistic and opaque politics. All major governance indicators captured by the Prosperity Index, ranging from judicial independence to policymaking transparency, have seen dramatic improvements under his presidency. More importantly, his targeting of official embezzlement marked an encouraging dedication to fighting endemic corruption, one of the worst in the region according to Transparency International’s Corruption Perception Index. As a result, the country’s falling performance in the Governance sub-index has been reversed and it now sits comfortably above the regional average.

Impressive progress notwithstanding, Indonesia has a long way to go before achieving regional prosperity leadership. In particular, efforts are required to improve its poor business environment. Trapped in the lower half of the World Bank’s Doing Business rankings and never having performed better than 75th in the Business Environment sub-index, the country is in desperate need of reform. Barriers to business formation must be removed and underdeveloped infrastructure invested in. Both pose significant obstacles to companies wishing to access its huge consumer market. The country has great untapped economic potential. Only half of female Indonesians actively take part in the labour market and only 20 percent of the population hold an account in a bank or other form of financial institution.

Joko’s government has rightly foccussed its attention on this area. Since 2014, the administration has published 12 economic policy packages aiming at boosting the country’s economy and attracting more foreign investment. The most recent package emphasises on enhancing the ease of doing business for small and mid-sized companies. Positive reform in this area is good news for potential investors and entrepreneurs. If Indonesia can unlock its economic potential, then even greater prosperity is well within its reach.


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Data

How to read this graph:
When comparing multiple countries on a spider chart, data points that appear
further away from the center represent a better performance to the points that are closer to the center.

Special Analysis

Special Analysis

OVERALL

Remarkable improvements in the Social Capital and Governance sub-indices during the last decade have seen Indonesia’s rise 19 ranks in the Prosperity Index at the same time as closing its prosperity deficit.

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Areas of Success
Areas of Success

Over the past ten years, Indonesia has made progress across the board except for its already decent performance in Safety & Security. The biggest improvement is observed in the Social Capital sub-index where it has risen 51 ranks into the global top 20. Additionally, the country has recorded a 14 rank rise in Governance thanks to improvements in corruption levels. Overall, these improvements have helped push Indonesia up 19 ranks in the Prosperity Index.

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Areas of Little Change
Areas of Little Change

Compared to impressive improvements in other sub-indexes, the single rank rises in the Economic Quality and Business Environment sub-indices seem negligible. Policy reform needs to go yet further to encourage greater labour force participation, lower the unemployment rate, facilitate medium and small business growth, and attract foreign investment.

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Areas of Improvement
Areas of Improvement

Although one of the safest countries in South East Asia, Indonesia has experienced falling performance in the Safety & Security sub-index over the past decade. This has been mainly caused by declining access to shelter and small increases in its low crime rates. However, with rising incidences of extremist attacks from Islamic State inspired groups, further falls in this sub-index is likely. Focus on economic improvement must tackle poor access to shelter for some, but Safety & Security cannot be too far from the government's mind.