The Framework

Indonesia’s Government Regulation No. 71 (GR71), which took effect in October 2019, distinguishes between public and private electronic system operators (ESOs) while imposing significant compliance burdens on both categories. Private ESOs, including U.S. technology companies, must register with the Ministry of Communications and Informatics (MCIT) before making their systems accessible to Indonesian users, yet the registration system only accommodates Indonesian entities, creating immediate operational barriers for foreign companies.^[1] The regulation mandates that private ESOs provide Indonesian authorities with access to their electronic systems and data for supervision and law enforcement purposes, effectively requiring companies to build backdoor access mechanisms.^[2]

For cross-border data transfers, companies must obtain explicit written consent from data subjects in Bahasa Indonesia, report transfer plans to MCIT, and coordinate all transfers with the ministry—creating multiple administrative checkpoints that slow operations.^[3] While private ESOs can technically store data offshore, sector-specific regulations in financial services and other industries impose additional localization requirements, and the government retains authority to designate companies as having “strategic electronic data” subject to stricter controls.^[4] Penalties for non-compliance include administrative fines of up to 2 percent of annual revenue, with enforcement beginning in October 2024.^[5]

Implications for U.S. Technology Leadership

These regulatory mechanisms force U.S. technology companies to establish costly compliance infrastructure that diverts capital and engineering resources away from research and development into administrative processes. The registration system’s technical limitations and the requirement to provide government access create operational uncertainty that particularly burdens American firms operating global platforms, as they must fragment their systems to accommodate Indonesia-specific requirements while maintaining security standards across their networks. The mandatory coordination with MCIT for data transfers adds layers of bureaucracy that slow product development cycles and increase operational costs, placing U.S. companies at a competitive disadvantage.

The precedent-setting nature of Indonesia’s approach encourages other nations to implement similar threshold-based discrimination against large technology companies, contributing to a patchwork of incompatible regulations that compound compliance costs across markets. Research demonstrates that Indonesia’s increasing data restrictiveness between 2013 and 2018 led to measurable economic harm—reducing trade output by 9.1 percent, decreasing productivity by 3.7 percent, and increasing downstream prices by 1.9 percent over five years—yet policymakers continue pursuing these self-defeating policies that ultimately weaken their own digital economies while undermining American technological leadership.^[6] As U.S. companies allocate increasing resources to navigate Indonesia’s regulatory maze, they lose ground in the global competition for AI advancement, cloud infrastructure innovation, and next-generation digital services, where sustained R&D investment determines market leadership.

Endnotes