Reforms aimed at addressing the shortcomings of Indonesia's business environment will move forward in a stop-start manner, reflecting the conflicting views on reform that exist within the governing coalition. The anti-corruption drive will continue, but the Anti-Corruption Commission (KPK) will face constant opposition, as will other statutory bodies charged with tackling graft. Several changes, including reform of the country's restrictive labour laws and removal of energy subsidies, may not prove politically feasible. Reform of the inefficient civil service, which was cited by Mr Yudhoyono as a priority for his second term, is making only slow progress. The government has, however, submitted draft legislation to parliament on land acquisitions. If passed, the measure will make it easier for the state to acquire land for development purposes, thus removing a major bottleneck obstructing much-needed improvements to infrastructure.

As a consequence of the inability of the civil service to spend fully the funds allocated to it, the Indonesian government generally fails to operate an effective countercyclical fiscal policy, and macroeconomic management therefore has to be achieved primarily through monetary policy. Bank Indonesia (BI, the central bank) will tighten policy in 2011-12 by raising interest rates in the face of inflationary pressures generated by strong economic growth. Maintaining the stability of the currency amid strong inflows of foreign capital will remain a priority. BI has tightened restrictions on foreign purchases of central bank bonds, known as BI certificates, by introducing a minimum one-month holding period in June 2010. Although the authorities remain eager to attract long-term foreign investment, the risk of currency instability stemming from a sudden change in investor sentiment was judged too great a risk to be ignored. Further restrictions on capital flows remain a possibility.