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(e) estimate (f) forecast Comparative Economic Indicators - 2007
*2008 estimates Credit and CollectionsOverseas Press & Consultants (OP&C) Evaluation
About 25% of shipments to Indonesia are on open account; one in three is paid for in advance. Another 25% are covered with sight and date drafts, or letters of credit, and there is some limited use of “cash against” documents. Importers on open account are generally prompt to pay locally. However, the banks hold funds an additional three months before processing exchange transfers. ABC-Amega’s collection experience in IndonesiaAccording to David Greenberg, AVP International: “Litigation in Indonesia is expensive, can take years and is unreliable. The local courts tend to be protectionist and sometimes give adverse rulings even in the face of incontrovertible evidence. Courts in Jakarta [the capital] are somewhat more reliable.” Dispute ResolutionDispute settlement mechanisms are not highly developed, although Indonesia is a signatory to the Convention On The Settlement Of Investment Disputes Between States And Nationals Of Other States (ICSID). Although the current administration had made judicial reform and anti-corruption top priorities, the court system does not provide effective recourse for resolving commercial disputes. In several instances, the local courts have accepted jurisdiction over commercial disputes despite contractual arbitration clauses calling for adjudication in foreign venues. In addition, criminal laws and penalties may be applied in cases that appear to be covered under civil laws and procedures. In an attempt to ease the backlog of cases, parties are required to undertake mediation before litigation, although courts do not necessarily fully enforce this rule. Indonesia's Arbitration Law recognizes the right of parties to apply any rules of arbitration procedure they may mutually agree upon, and provides default procedural rules that apply if no other rules have been designated. An Indonesian commercial arbitration board, BANI, is available if both parties agree. Based on all of the issues, most law firms advise clients not to attempt litigation in the country, and recommend arbitration in another jurisdiction as the preferred method of resolving disputes. Although the use of bills of exchange is uncommon in domestic commercial transactions between Irish companies, they are sometimes used in international trade. The check, defined as "a bill of exchange drawn on a bank and payable on demand", is more widely used for commercial transactions. It does not provide a foolproof guarantee, however, since issuing an unfunded check is not a criminal offence. SWIFT bank transfers are widely used, as they are quick and efficient. Payment orders issued via the website of the client's bank are a rapidly growing instrument. Risk AssessmentCoface Country Risk Rating: B -- Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable. Ducroire Delcredere Political Risk Rating: 2 – low risk Business ClimateIndonesia is attempting to break a long tradition of corruption and implement transparent and accountable government. However, the former political, administrative and business elites continue to seek influence and consolidate their position in the new democratic system through informal networks.
Indonesia is a member of WTO and ASEAN (Association of Southeast Asian nations). Transparency of Regulatory System: Decades of collusion between business and government have created a relatively stable, but highly unaccountable system, which does not benefit the general population. 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. Deregulation has been somewhat successful in reducing barriers, creating more transparent trade and investment regimes, and has alleviated, but not eliminated, red tape. Protection of Intellectual Property: The Indonesian government has steadily improved the regulatory and legal framework for the protection of intellectual property rights. While the government has recently improved its enforcement, more effort in this area is needed to create an effective deterrent. U.S industry sources maintain that 90% of all CDs (audio, video, and software) sold in Indonesia are pirated. The International Intellectual Property Alliance (IIPA) claims that piracy in Indonesia caused US$ 191.6 million in losses in the film, music, software and publishing industries in 2004. Pharmaceutical companies claim imports of counterfeit and grey market drugs control up to 30% of the local market. Conversion and Transfer Policies: The rupiah remains freely convertible. Banks must report all foreign exchange transactions and foreign obligations to Bank Indonesia (BI). Under the 2007 investment law, the government gives assurance to investors relating to the transfer and repatriation of funds in foreign currency. Economic Freedom: According to the Index of Economic Freedom-2008, Indonesia's economy is 53.9% free, which makes it the world's 119th freest economy. Its overall score is 0.1 percentage point down from last year, mainly reflecting lower scores in monetary freedom. Indonesia is ranked 22nd out of 30 countries in the Asia–Pacific region, and its overall score is lower than the regional average. Corruption: In Transparency International's Global Corruption Barometer 2007 survey, Indonesian private sector scores 3.1, where 1 is 'not at all corrupt' and 5 is 'extremely corrupt'. Among enterprises queried in a national survey, 35% reported they avoided investing in Indonesia because of widespread corruption. While corruption remains a difficult problem, numerous sources report the atmosphere in the bureaucracy has changed with officials at all levels reluctant to take actions that could appear improper or land them in jail. Indonesia has signed the United Nations (UN) Convention Against Corruption. Political Violence: The U.S. Department of State warns citizens to evaluate carefully the risks of travel to Indonesia. There is potential for violence and unrest, and both can erupt without warning. There is also the possibility of terrorist activity and sectarian, ethnic, communal and separatist strife and violence are ongoing threats to personal safety and security in various areas. For more detailed information on these topics, visit the 2008 Investment Climate Statement – Indonesia, of the U.S. Department of State. Business ProtocolLanguage: Although business transactions and correspondence are frequently in English, attempts to use Bahasa Indonesia, the country's official language, are appreciated. All official correspondence with government officials must be in Bahasa Indonesia. Use of the language is also mandated for many advertisements and publications. Fortunately, English-speaking translators are generally easily accessible. However, there has been some concern about the trustworthiness of translations. Therefore, ensure your translator is of the highest character and caliber. Appointments: Generally, Indonesians place less emphasis on efficiency, punctuality, and deadlines than Western counterparts -- hence the concept of 'rubber time', or jam karet that exists in Indonesia. Whether or not an Indonesian will be punctual often depends on his or her status in the organization's hierarchy. Whereas a subordinate must never be late for a meeting with a superior; it is the prerogative of the person of higher rank to make a person of lower standing wait – sometimes as long as two hours. As a visitor to the country, you are expected to be on time for all business appointments. It is important to remain patient and accommodating. Be sure to bring work, a book, or another diversion to fill the time should you be kept waiting. Business Cards: Give/accept cards using two hands or the right hand. Treat all business cards you receive with respect. If possible, have your business card printed in color and embossed, since Indonesian businesspeople tend to appreciate ornate cards. Most importantly, ensure that your card emphasizes your name and position and includes as much information as possible. Business Attire: Business attire is generally conservative. Women should be sensitive to Muslim beliefs and dress conservatively and modestly. Tight fitting clothes should be avoided, blouses should cover at least the upper arms, skirts should be knee length or longer. Names and Titles: Titles are important in Indonesia as they signify status. You should address Indonesians by their title followed by their name. If unsure, it is best to ask the individual how they should be addressed. Conversation: Indonesians are indirect communicators. It is up to the listener to read between the lines or pay attention to gestures and body language to get the real message. Indonesians abhor confrontation due to the potential loss of face. To be polite, they may tell you what they think you want to hear. Gifts: During the first meeting, presenting your Indonesian counterparts with small gifts is one of the best ways to display your interest and sincerity in establishing a long-term business relationship. The gifts should be modest but thoughtful, such as tokens representative of your country or that feature your company logo. Offer gifts with the right hand only. Wrap gifts in red, yellow or green paper or other bright colors as these bring good fortune. Gifts are generally not opened when received. Meetings and Negotiations: Initial meetings may be more about getting-to-know-you than business. Do not be surprised if business is not even discussed. In Indonesian business culture, relationships are based on respect and trust. It is common for Indonesians to enter the meeting room according to rank. Although you do not have to do this, doing so would make a good impression. Indonesians do not make hasty decisions; therefore, exercise patience. Indonesians are also shrewd negotiators, intent on obtaining the best deal possible. It is normal to haggle over a business deal. Acceptable Public Conduct: It's essential that you speak in quiet, gentle tones and always remain calm and in control of your emotions. With the exception of handshakes, there is no public contact between the sexes in Indonesia. Conversely, physical contact between people of the same sex is perfectly acceptable. Among both Muslims and Hindus, the left hand is considered unclean, and whenever possible, should not be used in giving or receiving. The right hand should be used exclusively to eat, accept gifts, hold cash, and touch people; these guidelines apply even if you are left-handed. Sources for further information on doing business in IndonesiaAmerican Chamber of Commerce in Indonesia Doing Business in Indonesia, Living in Indonesia Doing Business in Indonesia, U.S. Commercial Service Embassy of The Republic of Indonesia, Washington, DC Embassy of the United States in Jakarta Guide to Doing Business in Indonesia, by Ali Budiardjo, Nugroho, Reksodiputro (2005, 54-page PDF) ***** This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Indonesia. For further information, contact info@abc-amega.com. This report represents a compilation of information from a wide variety of reputable sources. Economic Indicators: Variety of sources including the CIA World Factbook, Coface Country Rating, Economist Country Briefings, Federation of International Trade Associations (FITA) Country Profiles. Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," December 2007. Historical Exchange Rates: OANDA.com The Currency Site. |
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Foreign investment is on the rise in Indonesia, but investors still point at corruption, red tape and an uncertain legal environment as the main challenges when conducting business in the country. The government has introduced significant reforms in the financial sector, including tax and customs reforms, the introduction of Treasury bills, and improved capital market supervision. Indonesia's new investment law, passed in March 2007, seeks to address some of the concerns of foreign and domestic investors.