Why is Indonesia only involved in limited bilateral free trade agreements? There are many reasons. Indonesia is currently only involved in two bilateral trade deals: (1) Indonesia-Japan EPA (2008) and (2) Indonesia-Pakistan PTA (2013).
One important reason is that Indonesia regarded not competitive enough to compete with foreign counterparts on the international market (especially in terms of manufactured goods), while at the same time the huge 260 million population of Indonesia (which is characterized by growing per capita GDP) would become a great market for (cheaper yet higher quality) foreign products imported under the trade deal.
Therefore, the government fears these trade deals will only result in a huge inflow of foreign products, while the rise in Indonesian exports would be limited. This is a dilemma for Indonesia.
This has resulted in limited investment in, for example, Indonesia's manufacturing industry and therefore these products lack competitiveness (in terms of price and quality) compared to products manufactured by regional counterparts (in Malaysia and Vietnam).
Indonesia's president, Joko Widodo, said in his speech that Indonesia has become more business-friendly in recent years. For instance, under the World Bank’s Ease of Doing Business Index, Indonesia jumped 15 places to the 91st spot between last year and this year. Last year, Indonesia was also ranked first in a Gallup survey on public trust in government. All three major international rating agencies — Standard & Poor’s, Fitch and Moody’s — have also rated Indonesia as investment grade.
Nevertheless, Mr. Widodo acknowledged there were still challenges in doing business in Indonesia, he pledged to address them.