The cultural connections between Majapahit and Indonesia are so strong it's uncanny. Candis? Kris? Modern day Indonesian icons. Spices? An integral part of Indonesia's modern economy. Even Gajah Mada was utilized as a symbol of patriotism when Indonesia became independent. Geographic area? Similar enough that it's not ludicrous that the devs made the decision they did
I agree wholeheartedly the civ should have been called Majapahit, but I disagree that Indonesia is a bad name. Worse than Majapahit? Yes. But a bad name choice? I think you have to really be nitpicking to get irked by that, particularly in a video game
As I've said in other places, it's primarily for marketing purposes. If you ask thousands of people where the Majapahit Empire was located, they'd probably be like "...uhhhh, I dunno, Africa or something?". But if you asked them where Indonesia was located, pretty much all of them would be certain it was in Asia, and most of them could certainly point to it on an unlabeled map. In terms of actually selling the game, a good part of what carries an expansion is the civs it includes. Leader screens take a big chunk of development effort, and those leaders are the engine that drives sales. Most people will want to buy such a costly expansion for the new people they can play as, and it's important to be able to recognize those characters. In terms of BNW, the only real odd one out is the Shoshone, and really, one glance at Pocatello makes you pretty certain he's Native American. Typically, this is the trend followed by the game, being able to clearly identify who and when and where these people were you're playing as. The odd ones out are likely the Songhai and Siam, but those are in the main game, where the actual civs are less important than the core game itself.
And really, modern Indonesia is very easily the continuation of the Majapahit Empire, and much of their culture is still descended from them. The word "Indonesia" paints a clear picture in the head, one similar to what the Majapahit actually was, but the word "Majapahit" provides no such thing to the vast majority of people.
And yeah, I don't think that a nation being "modern" means it's not worthy of being a civ. The idea of a civilization has been disputed here, but I personally think it's a definition that changes through time. Today, the concept of a civilization is basically a nation, what you'd see on a map, but thousands of years ago, it was less a formal thing and more of an idea, settlements with close ties and intertwined history. Sumer, for example, was never even a unified thing, more a region where human growth in the Fertile Crescent was greatest, composed of city-states heavily guarded against each other, but they had close cultural connections and grew mutual ideas and prosperity through trade and conquest, enough to make them feel like a unified group, even if they formally weren't. The same applies to Greece: the country as we know it is very young, but the idea of a Greek people does go back to ancient Greek times, where the settlers of that region had deep contact and grew in many similar ways, sharing gods and innovations and crafts amongst each other, even if for most of their history they were primarily city-states. As countries grew larger and richer, setting formal boundaries, nations became closer to how they're defined now, with lands outlined less by conquest and more by unity, until you have what we see today.