INDONESIA has improved its macro-economic and structural policies over the last 15 years. Its economy, with strong and stable growth rates of 5-6.6% is getting contagious with other countries in the region and allowing it to focus on a development agenda moving ahead with reforms that will take full advantage of this progress and unlock the country's full potential, says OECD 2012 Economic Survey: Indonesia.

Indonesia has battered the economic crisis quite well as a result of which poverty has come down strikingly but the challenges upfront are now is to boost productivity, reduce energy subsidies and raise tax collection to finance key infrastructure, social and environmental programmes to ensure the at future growth is holistic and sustainable.

The Survey reveals that policy reforms could focus on improving banks access to information on the credit worthiness of potential clients and developing alternative financing sources, such as venture capital or micro-finance.

In order to finance wider coverage of its social security system and develop its infrastructure, Indonesia will have to increase its excessively low 12% tax-to-GDP ratio, by removing tax exemptions on employer-provided fringe benefits, many VAT exemptions and tax holidays for specific sectors or investment projects. It should also focus to increase taxes in the resource sector.

Improving tax compliance of high-income individuals could increase public revenue and raise the fairness of the tax system. Increasing tax revenues can be best achieved by broadening tax bases and improving tax administration.