The Case for Legalizing Casino in Indonesia: A Risk Worth Taking?

Sumber: dokpri

Recently, Galih Kartasasmita, a member of Indonesia’s House of Representatives (DPR) stirred public debate by proposing the legalization of casinos. Considered as an “out-of-the-box” economic strategy, this initiative seeks to diversify national income sources beyond natural resource extraction and respond to the surge of online gambling. The supporting side argues that legal casinos could provide substantial revenue, create jobs, and improve regulation, while critics raise concerns over potential social and moral consequences. Can casino legalization be Indonesia’s shortcut to economic growth, or does it merely shift societal costs from the informal to the institutional level?

Cards from the Past

The history of legalized gambling in Indonesia goes back to the progressive governorship of Ali Sadikin of Jakarta between 1966 and 1977. Sadikin implemented pragmatic policies that included licensing casinos and other forms of gambling to generate more revenue for the capital's development. During this period, several casinos operated legally in Jakarta, contributing significantly to the local government’s budget and attracting international tourists. DKI Jakarta's regional budget (APBD) surged nearly 77-fold in just a decade (DDTC News, 2024). This era represented a unique moment in Indonesian history when economic pragmatism temporarily overcame religious and cultural objections to gambling. But all good things must come to an end, this policy then ended abruptly when religious and political pressures led to a ban by the late 1970s, pushing gambling into the shadow economy, a poorly regulated, untaxed space where illegal operators thrive.

Rolling the Dice

Indonesia’s persistent reliance on natural resource extraction, particularly coal, palm oil, and minerals has left the country’s fiscal health vulnerable to global commodity price volatility. This vulnerability was clearly reflected in early 2025, when total government revenue for January and February fell by 20.8% year-on-year to Rp316.9 trillion, resulting in an early budget deficit. Most notably, tax revenues plunged 30.2% to Rp187.8 trillion, a drop the Finance Ministry attributed to moderating prices of key export commodities such as coal, nickel, and crude oil (Reuters, 2025). The over-dependence on extractive sectors has made fiscal planning unpredictable and environmentally unsustainable. Legalizing casinos, under strict regulation, therefore offers a non-extractive revenue alternative that is less vulnerable to global shocks.

Even though gambling is officially banned in Indonesia, illegal forms from underground slot parlors to online betting are widespread and highly active. According to PPATK (Pusat Pelaporan dan Analisis Transaksi Keuangan), the total money circulating in online gambling activities in Indonesia reached Rp283 trillion as of the third quarter of 2024, with deposits totaling Rp43 trillion (Tempo, 2024). This poorly regulated economic activity consumes real resources and affects livelihoods, but it yields no formal tax or policy benefit to the government and the society. Worse, the underground gambling economy fosters rent-seeking behavior, where criminal or even political actors take advantage from legal ambiguity to capture profits without contributing to public welfare. 

The Coase Theorem states that if property rights are clearly defined and transaction costs are low, private actors can negotiate solutions to externalities without government intervention. However, in the context of gambling, these conditions rarely exist. The harms from gambling, such as broken families, productivity loss, and mental health deterioration are hard to quantify, making private negotiation impossible. Therefore, government intervention becomes essential to legalize and strictly regulate it in ways that mitigate harm to the society.

Moreover, legalized casinos can attract more investment in the tourism sector and integrated resort developments, especially in special economic zones. These investments also bring broad multiplier effects and stimulate growth in supporting industries like hotels, restaurants, retail, entertainment, and transportation. Take a look at Singapore’s experience. In the first three quarters after the openings of Resorts World Sentosa (RWS) and Marina Bay Sands (MBS) in 2010, the additional spending by tourists who visited Singapore specifically because of these integrated resorts, contributed an estimated S$3.7 billion in nominal value-added, equivalent to 1.7% of the country’s nominal GDP. This rise in economic activity is also estimated to have created over 30,300 additional jobs across the economy within that period (Singapore's Ministry of Trade and Industry, 2010). Legalizing casinos then becomes a potential solution by transforming the shadow economy into formal and taxable sectors, increasing transparency, regulatory capacity, and national revenue assuming effective governance.

High Stakes, High Costs

While the prospect of legalizing casinos may turn the jackpot dreams into reality, the potential downsides reach far beyond moral debates. Legalized gambling can lead to more significant and diffuse negative externalities, such as addiction, domestic abuse, suicide, crime, and indebtedness. These are the costs that are not reflected in market prices, leading to a welfare loss even if GDP increases. In fact, cited from a study out of the University of Illinois, in the U.S., where casinos are widely established, for each $1 in casino tax revenue, society bears $3 in costs for the social problems created by gambling (John Kindt, 1994). While casinos may increase gross revenues, their net contribution is often overstated once long-term social costs are taken into account, highlighting the risk of immiserizing growth, where output numbers rise but societal well-being deteriorates. Economic analysis from Douglas M. Walker’s “Casinonomics” reinforces these concerns using the Production Possibility Frontier (PPF) and Indifference Curves (IC) models.

Figure 1. Immiserizing Growth, source: Casinonomics, Douglas M. Walker, 2013

The outward shift of the PPF from PPF 1 to PPF 2 represents an increase in a country’s capacity to produce through the legalization and expansion of casinos. This shift shows that the economy can now allocate more resources toward casino gambling, increasing the nation’s total output. However, if the economy becomes over-specialized in sectors with harmful externalities, then the overall societal welfare may decline. In this case, even as the PPF shifts outward, society moves from a higher indifference curve (IC 1) to a lower one (IC 2), indicating the society being worse off despite the growth (Douglas M. Walker, 2013). This model demonstrates the risk that gambling-driven growth is not only overstated in economic value, but also potentially reducing welfare, especially when long-term societal impacts are ignored in favor of short-term economic gains.

Moreover, legalized casinos can crowd out productive consumption. Household spending that might go to education, businesses, or savings, is now being used for gambling. In this light, rather than being a growth engine, they may function as a mechanism to shift spending from a productive economy to a speculative one, heightening inequality while delivering superficial prosperity. Furthermore, the theory of endogenous preferences, which states that individual preferences form under the influence of the economic, social, legal, and cultural structure of the environment (Oxford, 2009), warns that institutions like casinos don't just serve existing demand, they actively reshape preferences. Over time, legalized gambling may normalize risk-seeking and addictive behavior, creating long-term costs that may far outweigh short-term revenue gains.

Bet Big, Learn Bigger

As Indonesia contemplates the possibility of legalizing casinos, it can look to the experiences and plans of nations with shared cultural and religious values such as Malaysia and the United Arab Emirates (UAE) which have adopted highly selective yet economically impactful approaches to legalized gambling. In Malaysia, Resorts World Genting (RWG) remains the country’s only licensed casino and has become one of the pillars of domestic tourism and fiscal revenue. RWG had approximately 24.9 million visitors in 2023, reaching 86% of its pre-pandemic level, increasing from 22.2 million in 2022 (Genting Malaysia, 2024). During pre-covid, RWG attracted a diverse international crowd, with Malaysian and Singaporean visitation making around 85%, while Indonesian made around 10% and Chinese at 4% (The Edge Malaysia, 2024). Despite this high number of visitors, Malaysia has maintained a clear boundary between economic liberalization and religious matters by prohibiting Muslims from entering casinos, a policy implemented through mandatory identity checks at the entrance. This approach allows Malaysia to seize the economic benefits while still respecting the religious norms of its majority population. 

On the other side, UAE, with the upcoming Wynn Al Marjan Island in Ras Al Khaimah, marks its kick-off into the gambling industry. The luxury integrated resort is scheduled to open in 2027. With a projected USD 5.1 billion investment, the resort estimates up to USD 1.67 billion in annual revenue from the casino alone (Inside Asian Gaming, 2024). Critically, similar to Malaysia, the access is restricted to foreign tourists only, with Emirati nationals prohibited under the national policy. Both case studies suggest that geographically and demographically restricted casino models can unlock fiscal benefits without destructing cultural and religious values. For Indonesia, adopting a framework that includes strict zoning and demographic access control could possibly yield similar outcomes, gaining economic benefits, attracting investment, and boosting the domestic tourism sector.

The potential benefits of legalizing casinos in Indonesia are too substantial to ignore. At a time when online gambling escalates, sweeping off trillions of rupiah into the shadows, and the state struggles with a substantial fiscal burden, legalizing casinos presents a convincing opportunity. It offers a chance to reclaim the lost capital, improve fiscal performance, and become the beacon of future tourism development. It would be a missed opportunity, and a costly one if Indonesia let these benefits slip away. However, Indonesia must not be blinded by the potential gains. The lack of institutional readiness, regulatory capacity, and law enforcement to implement a good-governed legalization framework can quickly turn the promise of prosperity to a miserable state of addiction and inequality. The challenge therefore lies not merely in legalizing, but also in governing. In this high-stakes choice of policy, the prizes are on the table, but is Indonesia ready to seize them?

References

Walker, D. M. (2013). Casinonomics: The Socioeconomic Impacts of the Casino Industry. Springer. Retrieved from https://books.google.co.id/books?id=bdJ8a9F-pCAC&pg=PA1965&source=kp_read_button&hl=en&newbks=1&newbks_redir=0&gboemv=1&redir_esc=y#v=onepage&q&f=false 

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Tempo.co. (2024). PPATK Reveals Online Gambling Deposits Hit Rp43 Trillion as of Q3 2024. Retrieved from https://en.tempo.co/amp/1948192/ppatk-reveals-online-gambling-deposits-hit-rp43-trillion-as-of-q3-2024

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The Edge Malaysia. (2024). Visitor arrivals to Resorts World Genting may fully recover in 2024, says Maybank IB. Retrieved from https://theedgemalaysia.com/node/696499

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Inside Asian Gaming. (2024). Wynn sets total budget for UAE project at US$5.1 billion, expects annual GGR of up to US$1.7 billion. Retrieved from https://asgam.com/2024/10/09/wynn-sets-total-budget-for-uae-project-at-us5-1-billion-expects-annual-ggr-of-up-to-us1-7-billion/

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