Indonesia has continued to recover from a period of underinvestment, but more needs to be done to improve transparency to attract more investment.
June 11, 2021
Asia - South East
The fiscal regime applicable to oil and gas companies consists of production sharing contracts (PSCs) that are entered into between contractors and the executive body for oil and gas upstream activities on behalf of the Indonesian Government.
Since 2014, the Indonesian government under President Joko (“Jokowi”) Widodo, now in his second and final five-year term, has prioritized boosting infrastructure investment and human capital development to support Indonesia’s economic growth goals. As he began his second term in October 2019, Jokowi announced sweeping plans to pass omnibus laws aimed at improving Indonesia’s economic competitiveness by lowering corporate taxes, reforming rigid labour laws, and reducing bureaucratic and regulatory barriers to investment. However, with the fallout from the Covid-19 pandemic, the government shifted its focus to providing fiscal and monetary stimulus to support the economy. Regardless of the outcome of further reforms, factors such as a decentralized decision-making process, legal and regulatory uncertainty, economic nationalism, and powerful domestic vested interests in both the private and public sectors, create a complex investment climate. Despite recent limits placed on its authority, the Indonesian Corruption Eradication Commission (KPK) continues to investigate and prosecute corruption cases. However, investors still cite corruption as an obstacle to pursuing opportunities in Indonesia.
Source: ESRI, Heritage Index, HMG Foreign & Commonwealth Office, US Department of State, International Trade Administration, International Law Review, Ernst & Young, Wood Makenzie & OGA data.
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