Chapter 25

INDONESIA

Yozua Makes 1

I OVERVIEW OF M&A ACTIVITY

In 2018, Indonesia’s mergers and acquisitions (M&A) landscape is expected to accelerate,
continuing the positive trends in 2017. An annual report entitled ‘Transaction Trail’, issued
by Duff & Phelps in 2017, provides an insight into transaction and capital market activities –
M&A, private equity, venture capital and initial public offerings – including those in Indonesia
that year. The country has contributed significantly to the growth in deal-making, driven by
inbound investments, representing 68 per cent of M&A deals in Indonesia, Singapore and
Malaysia. According to the report, Indonesia recorded 81 M&A deals in the period from
January to June 2017, with a total value of approximately US$4  billion, compared with
71 deals worth US$1.9 billion in the first half of 2016. Technology was the largest sector in
value terms, representing 26 of the 81 deals. In terms of volume of deals, financial technology
and the sectors associated with it has been the most active in the past 12 months, driven by
new regulatory frameworks on peer-to-peer lending and payment systems. In terms of value,
M&A in the manufacturing and energy sectors still lead in most transactions.
Since being elected in 2014, President Joko Widodo has initiated various regulatory
reform measures, packaged under a series of ‘deregulation policies’ (or economic deregulation
packages (EDPs), aimed at combating regulatory complexities and bureaucratic hurdles. The
first EDP was launched in September 2015, since when there have been revisions to support
the objectives of EDP reforms.
The government launched Government Regulation No. 91 of 2017 on the Acceleration
of Business Implementation on 4 December 2017, which was followed by the head of the
Capital Investment Coordinating Board (BKPM) 2 issuing Regulation No. 13 of 2017 on
Guidelines and Procedures for the Implementation of Capital Investment Licensing and
Facilities (BKPM Regulation 13/2017). The Indonesian government aims to simplify
investment licensing and investment facilities procedures with the issuance of this regulation.
Among the key changes are the possibility of simplified licensing for services sector by allowing
certain companies to apply a full licence directly and simplification of merger approval from
a two-stage to a one-stage process.

1 Yozua Makes is the managing partner at Makes & Partners Law Firm.
2 BKPM is an investment service agency of the Indonesian government.

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II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A

In general terms, the statutory framework for combining businesses through a limited liability
company is set out in Law No. 40 of 2007 on the Limited Liability Company (the Company
Law) and various implementing regulations, such as Government Regulation No. 27 of 1998
on Mergers, Consolidation and Acquisition of Limited Liability Companies.
In addition to the aforementioned ‘umbrella’ laws and regulations, the practice and
procedure for implementing particular transactions must comply with other specific laws and
regulations relating to the status or nature of business of the target company and is regulated
by specific bodies. For instance, banks, financial institutions and public listed companies are
regulated by the Financial Service Authority (OJK). The OJK is a body established by virtue
of the Financial Authority Law (Law 21/2011) merging the authority previously held by
the Capital Market and Financial Institution Supervisory Board or Bapepam-LK (Bapepam)
and the bank oversight authority of the Central Bank (BI) to supervise all activities in the
financial services industries under one agency, with the exception of payment services that
are still under BI. Further, companies with foreign share ownership are regulated by the
BKPM and for tax purposes, all companies are subject to the relevant M&A regulations of
the Directorate General of Tax and the OJK, which also regulate share custodian services
and securities broker-dealers. In addition, for M&A in the insurance sector, companies are
required to comply with the Insurance Law and its implementing regulations; for M&A in
the broadcasting sector, companies are required to comply with the Broadcasting Law and
its implementing regulations; and for M&A in the telecommunication sector, companies are
required to comply with the Telecommunication Law and its implementing regulations, and
other sector-specific regulations to govern the respective M&A in the industry.
In general, the requirements pertaining to M&A in Indonesia are as follows:
a announcement of an M&A proposal prepared by the acquirer and the target company
or the merging companies, as the case may be, in newspapers;
b an extraordinary general meeting of shareholders (GMOS) of the target company or
each of the merging companies (as the case may be) in which a quorum of at least
75 per cent of the total number of shares with voting rights are present (unless otherwise
stipulated in a specific regulation), and in which approval is obtained from shareholders
holding at least 75 per cent of the number of votes cast;
c approval from creditors in respect of the proposed M&A transaction and waiver of their
rights for claims to be settled prior to the effectiveness of the merger or acquisition;
d a valuation of shares to determine the fair market value of the merger shares conversion
formula;
e approval from third parties, including but not limited to approval from third parties
required by prevailing law as well as pursuant to agreements entered into by the
companies involved;
f approval from the relevant agencies having jurisdiction over the merging or the
acquired company or companies (e.g., the OJK, the BKPM and the Ministry of Law
and Human Rights); and
g consent from any relevant industry regulator, depending on the nature of the target
company’s business.

An M&A transaction involves different companies, which can potentially result in a conflict
of interest among directors, commissioners, majority shareholders and affiliates. Thus,
with regard to the acquisition of a public company, in order to provide legal certainty and

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protection for shareholders – particularly independent shareholders who have no conflict

of interest in particular transactions – the OJK under Bapepam Rule No. IX.E.1 requires
a public listed company conducting an M&A transaction must appoint an institution
registered at the OJK to appraise the transaction. In the event that the OJK finds a conflict
of interest, the transaction will require approval by the independent shareholders through a
vote at a GMOS. Another related regulation is Bapepam Rule No. IX.E.2, last revised on
28 November 2011. Rule IX.E.2 provides that disclosure of material transactions with a value
of between 20 per cent and 50 per cent of the public company’s equity must be published
within two business days of signing the transaction documents; if the value exceeds 50 per
cent, approval from the GMOS is also necessary. The rule also requires the results of material
business transactions and changes in core business to be reported to Bapepam within two
working days of completion.
In the banking sector, banks are subject to Government Regulation No. 28 of 1999
regarding Merger, Consolidation and Acquisition of Banks. Indonesia has acknowledged the
single-ownership principle of the Indonesian banking industry known as the Single Presence
Policy pursuant to BI Regulation No. 14/24/PBI/2012 on Single Presence Policy. Pursuant
to this policy, albeit only certain requirements and exceptions, a controlling shareholder
of an Indonesian bank is allowed to be the controlling shareholder of only one bank.
Another important regulation of bank ownership is BI Regulation No. 14/8/PBI/2012 on
Share Ownership of Commercial Bank. The rule sets out maximum share ownership over
Indonesian banks, around 20 to 40 per cent, differentiated based on the specific nature of the
shareholders (whether the shareholder is also a bank, a financial institution or an individual).
The rule allows ownership that exceeds this limit, subject to OJK approval. Further, there is
a specific requirement for prospective foreign investors to commit to the country’s economic
growth, obtain approval from the authority of the respective country of origin, and be subject
to certain ratings set out by the BI.
Recently there have been regulatory discussions within the OJK to issue a new
regulation on holding companies for financial conglomeration activities, which requires
companies operating across different financial sectors to form a holding company that is also
subject to OJK supervision. Financial industry stakeholders are waiting for the introduction
of this new regulation.

III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW

AND THEIR IMPACT
In general, developments in corporate and takeover laws aim to make the process more
transparent, taking into consideration concerns of different stakeholders such as creditors,
employees, minority shareholders and consumers, and within the framework of environmental
protection and fair competition.
The government is concerned about maintaining fair competition among business
players in Indonesia. Consequently, regulations governing fair trade practices are frequently
issued or amended. In connection therewith, the Business Competition Supervisory
Commission (KPPU) recently issued implementing regulations to the Antimonopoly Law,
namely KPPU Rule No. 10 of 2010, Rule No. 11 of 2010 and Rule No. 13 of 2010, which
govern the consultation and post-notification requirements for mergers, consolidations and
acquisitions, along with guidelines that, inter alia, provide for scrutiny of contemplated
M&A transactions. These rules were issued as the implementing regulations of Government

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Regulation No. 57 of 2010 (GR 57/2010) on the Merger or Consolidation and Acquisition
of Enterprise Share which may Result in Monopolistic Practices and Unfair Business
Competition, which was recently issued by the government (see Section IX).
With respect to acquisitions of public companies (also known as takeovers), Bapepam-LK
regulations are still applicable, namely Rule IX.H.1 regarding Takeover of a Public Company,
which was issued on 31 May 2011, amending the previous rule enacted in June 2008. This
regulation introduces the concept of mandatory tender offer (MTO), which is triggered by a
takeover of a public company. The rule requires the refloating obligation of shares obtained
as a result of an MTO by 20 per cent. However, the OJK can grant an extension of the time
period for a refloat of shares to the stock exchange in certain cases. The OJK also introduced
OJK Regulation No. 54/POJK.04/2015 on Voluntary Tender Offer, which can be a tool
for acquisitions for public companies with no controlling or simple-majority shareholders,
amending the previous Bapepam-LK Rule IX.F.1 of 2011.
In December 2016, the OJK introduced a revision to the regulation concerning merger
and consolidation of public companies by virtue of OJK Regulation No. 74/OJK.04/2016.
This regulation provides new documentary requirements for OJK approval in the event of
a merger or consolidation of public companies. The required documents include corporate
shareholding and management documents, an appraisal report, a business plan, notes on the
new controller, and a management analysis report. The aim of this Regulation is to further
promote investor protection and disclosure of information.

IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS

Foreign direct investment in Indonesia is regulated by Law No. 25 of 2007 on Capital
Investment (the Investment Law) and its implementing regulations issued by the BKPM.
As the appointed regulator of direct capital investment in Indonesia, the BKPM has mainly
focused on the efforts by the government to attract foreign investors and to build an
international economic environment.
The most recent rules on foreign equity restrictions are stipulated in Presidential
Regulation No. 44 of 2016, which determines which business sectors are open or closed
for foreign investors and, if open, to what extent foreign direct investment is permitted
(the Negative List). The Negative List is the first and most important regulation that any
foreign investor contemplating investment in Indonesia should consult. If the business of
the companies in the contemplated M&A is in a field of business that is closed to foreign
investment as provided in the Negative List, then the foreign investor cannot invest in that
business field in Indonesia. However, if the business is one of the listed business fields that
are conditionally open for investment, then foreign investment in that business is permitted
but the contemplated M&A involving foreign investors will be limited regarding the level of
foreign ownership of shares allowed in the Negative List. As a consequence of the involvement
of foreign investors in an M&A transaction, the Indonesian company will be required to
convert its status from a domestic company into a foreign investment company within the
framework of the Investment Law.
The following are representative examples of general application of current Negative List
provisions regarding foreign investment, which are also subject to other specific regulations:
a finance companies: maximum foreign ownership is 85 per cent;
b insurance: maximum foreign ownership is 80 per cent; and
c plantation: maximum foreign ownership is 95 per cent.

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Most private foreign direct capital investments in Indonesia are administered and supervised
by the BKPM. Consequently, most matters relevant to M&A transactions must be reported
to and will require approval of the BKPM chairman. BKPM Regulation 13/2017 sets out
the procedures for obtaining BKPM approval for new investments, changes in shareholders,
mergers or business expansions.
Public companies, on the other hand, are regulated by the OJK. Unlike private companies,
unless specifically provided under a separate regulation, public listed companies have no
restriction on foreign ownership of shares provided the investment involves foreign passive
portfolio investors and not strategic or controlling foreign investors. Moreover, the provisions
under the Negative List are not applicable to a public company whose shares are acquired by
foreign investors in portfolio transactions made through the domestic capital market.

V SIGNIFICANT TRANSACTIONS AND HOT INDUSTRIES

For years, Indonesia has been substantially relying on the energy and mining sector, being
a strong force in the oil and gas business and the world’s largest exporter of thermal coal.
More recently, the rise of the middle class means increased consumer spending, and therefore
consumer sectors such as retail, consumer technology, consumer goods, transportation
(including aviation) and property are the main targets.
The biggest deals in 2017 were made in the digital economy and technology sector.
This was a stark shift from 2016, in which the mining sector led most of the deals following
the acquisition of Newmont Nusa Tenggara by Medco Energy. In general, based on the latest
studies conducted by various companies, such as Bain & Company or Solidiance, the number
of M&As in Indonesia’s technology sector has been rising during the past couple of years. For
example in 2017, China’s e-commerce giant Alibaba Group Holdings injected US$1.1 billion
into Indonesian e-commerce platform Tokopedia. The Indonesian ride-hailing start-up
Go-Jek benefited from a US$1.2 billion injection, led by Chinese internet giant Tencent
Holdings Ltd in a move to maintain competition. GrabPay has been rebranded ‘GrabPay,
powered by OVO’ following a partnership between GrabPay’s in-app cashless features and
Lippo Group’s OVO, a licensed e-money provider, which somewhat overlaps with its rival
Go-Jek announcing the acquisition of three of the largest fintech companies in Indonesia.
Outside the e-commerce industry, another big deal involved the tobacco industry.
Japan-based cigarette manufacturing company Japan Tobacco Inc bought 100 per cent of the
shares in Karyadibya Mahardika and Surya Mustika Nusantara, both of which are subsidiaries
of Gudang Garam (Indonesia’s second-largest tobacco manufacturer).

VI FINANCING OF M&A MAIN SOURCES AND DEVELOPMENTS

As in other jurisdictions, the financing of M&A in Indonesia is generally derived from
internal cash flow, bank loans (provided such financing is not intended for investment
in speculation on shares), issuance of new shares (share swaps) and issuance of financial
derivative instruments.
Various regulations are applicable depending on the nature of the financing scheme,
including the reporting requirement to BI for foreign currency denominated loans from
offshore banks or entities, submission of registration statements to the OJK if the transaction
involves conducting a rights issue and approval by the BKPM for an increase in equity to
finance expansion (growth by acquisition instead of organic growth).

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The prevailing regulations that affect the financing of M&A are as follows: BI Regulation
No. 12/24/PBI/2010, regarding Offshore Debt Reporting Obligation; BI  Regulation
No. 12/10/PBI/2010 regarding Offshore Borrowing of a Non-Bank Corporation,
BI  Regulation No. 10/28/PBI/2008 regarding the Purchase of Foreign Currency Against
Rupiah through Banks, and BI Regulation No. 14/16/PBI/2012 regarding Short-Term
Financing Facility for Commercial Banks which, inter alia, prescribes reporting and credit rating
requirements in some cases. BI also issued Regulation No. 7/1/PBI/2005 regarding Offshore
Borrowing of Banks, which has been further amended by BI Regulation No. 13/7/PBI/2011,
BI  Regulation No. 15/6/PBI/2013 and BI Regulation No. 16/7/2014, containing, among
other things, an obligation for banks to limit the daily balance of short-term offshore
borrowing to a maximum of 30 per cent of capital.
Another key regulation on the matter is BI Regulation No. 16/21/PBI/2014 on
Implementation of Prudential Principles for the Management of Foreign Loans of Non-Bank
Corporations to make improvements to BI Regulation No. 16/20/PBI/2014, which
previously regulated the same. This Regulation aims to prevent foreign loans and excessive
foreign debt from hampering macroeconomy stability, by providing guidelines for non-bank
corporations to implement prudent principles in managing their loans with foreign parties.
In managing foreign loans, companies must implement prudential principles by complying
with the prescribed hedging and liquidity ratios, and credit ratings. Hedging and liquidity
ratios are based on foreign-currency assets (receivables) and liabilities (obligations) from
forwards, swaps or options transactions.
Mandatory use of rupiah as the transaction currency is another hot regulatory topic in
Indonesia. On 28 June 2011, the government issued Law No. 7 of 2011 on Currency (Mata
Uang). Article 21(1) of Law No. 7/2011 provides that the rupiah shall be used in every
payment transaction, fulfilment of other monetary obligations, or other financial transactions
within Indonesian territory, with certain exceptions. In 2015, BI issued BI Regulation
No. 17/3/PBI/2015 on the Mandatory Use of Rupiah within the Republic of Indonesia. The
regulation basically strengthens the Currency Law, and provides clearer guidance that the
Law applies to both cash and non-cash transactions. The Regulation also explains in details
the five exceptions to the rule.

VII EMPLOYMENT LAW

Law No. 13 of 2003 on Employment (the Labour Law) provides the framework for rights
of employees and employers in the M&A context. Basically, since M&A is only related to
the change in ownership or control of a company, it should not in any way affect employee
status. In general, there are two possibilities with respect to an employee’s continuance in
the company with new controlling shareholders (in an acquisition) or with the surviving
company (in a merger), which could be either the extension or renewal of the employee’s
term of employment. In the case of renewal of employment, the employee will have his or her
contract terminated from the previous company (before it was merged or acquired) and then
be rehired by the surviving company under new terms and conditions. Accordingly, there
is a requirement under the Company Law for boards of directors of companies undergoing
M&A transactions to publish a summary of the proposed M&A in at least one newspaper
and announce it in writing to the employees of the surviving or acquired company no later
than 30 days before the invitation of shareholders to the GMOS.

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Should an employee not wish to maintain his or her employment with the surviving
company, then he or she has the right to refuse the new employment. Thus, the employee
can resign from the company and demand a special severance payment, long-service payment
package and accrued compensation (such as untaken annual leave or housing allowance, if
applicable) as set out in the Labour Law, Article 163(1). It should be noted that the Labour
Law does not specify the percentage of ownership that triggers the entitlements but simply
refers to a ‘change of ownership’. There is a risk that the employees or their union (if any)
will take the position that any change of ownership will qualify under Article 163(1), even
where there is less than a 50 per cent change in shareholding. Any substantial change in
management and employment policies, however, could also trigger Article 163(1), even
though the new shareholder is not a controlling shareholder, as this may directly or indirectly
affect the employees.
However, under Article 163(2) of the Labour Law, employers (both the buyer and the
seller) also have the right to terminate employment in the event of a change in a company’s
status, a merger or a consolidation, subject to the payment of severance and long-service
payment as set out in Article 163(2), which is set at a higher level than under Article 163(1)
mentioned above.
In addition to the above, the rights of employees in M&A transactions are also governed
by the provisions relating to M&A transactions in a collective labour agreement entered into
by and between the company and the company’s labour union. In the event of inconsistency
between the provisions of the Labour Law and the collective labour agreement, the provisions
that are more favourable to the employees will prevail.

VIII TAX LAW

i Corporate income tax in mergers
As in other jurisdictions, the accounting method used in mergers is generally a ‘pooling of
interest’ method and a book value transfer approach.
Article 1(3) of Minister of Finance Decree No. 43/PMK.03/2008 of 13 March 2008
on the Use of Book Value for Transfer of Assets in Relation to Merger, Consolidation or
Spin-off (MOF Decree 43/2008) defines a ‘business merger’ as a merger of two or more
taxpayer entities with capital divided into shares in a manner that maintains the existence of
one of the companies having no residual loss or having a smaller residual loss.
Furthermore, Article 2 of MOF Decree 43/2008 provides that taxpayers conducting a
merger using book value must fulfil the following requirements:
a submission of an application to the Director General of Tax, including the reason and
purpose for conducting the merger or spin-off;
b payment of all tax owed by each of the companies involved; and
c fulfilment of requirements of the ‘business purpose test’ (described below).

In addition, Article 3 of MOF Decree 43/2008 provides that a taxpayer conducting a merger
using book value may not compensate the loss or residual loss of the merged taxpayer.
In general, one could conclude that there will be no capital gains tax (corporate
income tax) if the Directorate General of Taxation has issued the approval for a merger with
book value. In the event that the transfer of assets using book value is not approved by the

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Directorate General of Taxation, then the transfer of assets shall be valued at the market price
and the difference between the book value and the market value (capital gains) will be subject
to corporate income tax at the rate of 25 per cent (flat rate).

ii Value added tax

The transfer of assets is subject to VAT at 10 per cent of the market value, pursuant to
Articles 4(1) and 7(1) of Law No. 42 of 2009 on Value Added Tax and Sales Tax on Luxury
Goods (the VAT Law).
The VAT should be imposed by a ‘taxable business entity’ on the delivery of assets,
the initial purpose of which is not to be traded, except assets on which the VAT cannot be
credited because the acquisition of such assets has no direct relation to the business activity,
and for acquisition and maintenance of sedan or station wagon motor vehicles when made
for a trading inventory or for rental purposes.

iii Tax on transfers of land

Government Regulation No. 41 of 2016 provides that the disposal of land and buildings is
subject to final income tax at the rate of 2.5 per cent of the transfer amount that is stated in the
deed, which is a reduction from the previous 5 per cent rate (the transferor’s tax obligation).
Moreover, the transfer of land or buildings in a merger is subject to land or building title
acquisition duty (BPHTB) of 5 per cent of the taxable value (NJOP) (the surviving entity’s
tax obligation). The acquisition value of the tax object (NPOP) in the merger is the market
value or the same as the NJOP.
The taxpayer who carries out the merger and obtains approval for the use of book value
for the merger from the Director General of Taxation may apply for a 50 per cent reduction
in the BPHTB.

iv Sale of shares
Article 17 of Law No. 36/2008 on Income Tax provides that the maximum tax rate for
individual taxpayers is 30 per cent and the tax rate for corporate taxpayers is a flat rate of
25 per cent. Public companies that satisfy a minimum listing requirement of 40 per cent
along with other conditions are entitled to a tax discount of 5 per cent off the standard rate,
giving them an effective tax rate of 20 per cent.
For transfer of shares in general, the difference between the acquisition of shares and the
selling price of shares will be subject to capital gains tax at the rate of 30 per cent (maximum)
if the seller is an individual and at the rate of 25 per cent (flat rate) if the seller is a corporate
taxpayer in Indonesia.
If the seller of the shares is a non-Indonesian taxpayer, then the capital gains tax from
the selling of the shares will be regulated based on the applicable tax treaty between the seller’s
country of domicile and Indonesia.
For a transfer of shares of a public listed company, a final tax of 0.1 per cent of the
transaction value will be applicable to the seller and 0.5 per cent tax on the founder shares (if
the seller is holding the shares from the initial public offering).

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IX COMPETITION LAW
Certain provisions of Law No. 5 of 1999 on the Ban on Monopolistic and Unfair Business
Practices (the Antimonopoly Law) deal specifically with M&A. Essentially, pursuant to
Article  28 of the Antimonopoly Law, M&A transactions are prohibited if they result in
monopolistic or unfair trade practices. Therefore, all efforts should be made to ensure that
any contemplated M&A transaction does not give rise to a monopolistic or unfair practice.
The Antimonopoly Law uses a market share standard as a parameter for ascertaining the
presumption of a monopoly (if a business player has more than a 50 per cent market share),
for ascertaining the presumption of an oligopoly (if a group of business players has more than
a 75 per cent market share) and for determining the dominant position (if a business player
has more than a 50 per cent market share, and as a group, those business players have more
than a 75 per cent market share unless the dominant position is not abused).
The government’s issuance of GR 57/2010 was followed by KPPU Rules No. 10 of
2010, No. 11 of 2010 and No. 13 of 2010 (the latter being revised by Rule No. 11 of 2011)
(the KPPU Rules). GR 57/2010 and the KPPU Rules provide that companies conducting an
M&A transaction with the following criteria shall fulfil the post-notification requirements as
described below:
a the total value of assets of the companies concerned is more than 2.5 trillion rupiah; or
b the total turnover of the companies concerned is more than 5 trillion rupiah.

It should be noted that subscription to newly issued shares (capital increase) shall also be
deemed acquisition.
The KPPU provides for a consultation procedure and post-notification within 30 days
of completion of the contemplated deal. In addition, GR 57/2010 provides that a bank
conducting an M&A transaction shall submit a post-notification of the transaction to the
KPPU if the total value of assets of the bank concerned is more than 20 trillion rupiah. Any
non-compliance with this requirement will be sanctioned with administrative penalties.
After receiving a post-notification, the KPPU will conduct an assessment to determine
whether the transaction has violated the Antimonopoly Law, taking into account:
a market concentration;
b market entry barriers;
c potential for unfair trade;
d efficiency; or
e whether an M&A transaction is necessary to prevent a company’s bankruptcy.

It should further be noted that pursuant to Article 47(2.E) of the Antimonopoly Law, the
KPPU has the authority to cancel an M&A transaction if it has elements of monopolistic
or unfair trade practices. Moreover, the Antimonopoly Law may apply to foreign entities
that are not doing business in Indonesia but have entered into agreements with Indonesian
entities that may result in monopolistic or unfair trade practices within Indonesia. Hence, it
would be advisable for investors contemplating an M&A transaction to file for a consultation
prior to completion of the contemplated transaction with the KPPU to avoid cancellation of
the transaction at a later stage.

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X OUTLOOK
There was a major and unprecedented shift of M&A deals dominated by the technology
sector during 2017, in contrast to 2016 when the mining sector still dominated. Consistent
political support by the new government has generated renewed optimism about Indonesia’s
potential growth, as there is substantial untapped potential for M&A, given Indonesia’s
consumer market, to cater for the needs of the rising middle class. Natural resources (coal,
palm oil, natural gas, petroleum and mineral resources) remain an important sector, but
telecommunications, retail, property, construction, technology and financial services have
proven to be the sectors that have led the market.
As a democratic country that has undergone significant reform in the last two decades,
challenges still remain. Bureaucratic red tape and corruption have become the main obstacles
to sustainable growth. However, several reform initiatives have been introduced to restore
confidence in the business climate. Investors are still waiting for the effects of new procedures
introduced by Government Regulation No. 91 of 2017 and the subsequent BKPM regulation
at the end of 2017 to streamline business processes. Financial and securities regulations, as
well as corporate governance rules, have been set up to provide a more sophisticated and
modern regulatory environment for foreign investors.
In light of the foregoing, it appears that recent economic development shows market
confidence that the Indonesian government will continue to maintain and improve
transparency, the certainty of stakeholders’ involvement, fair competition and a more friendly
environment for foreign investment.

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