Overview

The largest economy in Southeast Asia, Indonesia – a diverse archipelago nation of more than 300 ethnic groups -- has charted impressive economic growth since overcoming the Asian financial crisis of the late 1990s. The country’s gross national income per capita has steadily risen, from $560 in the year 2000 to $3,630 in 2014. Today, Indonesia is the world’s fourth most populous nation, the world’s 10th largest economy in terms of purchasing power parity, and a member of the G-20.  It has made enormous gains in poverty reduction, cutting the poverty rate to more than half since 1999, to 11.2% in 2015.

Indonesia’s economic planning follows a 20-year development plan, spanning from 2005 to 2025. It is segmented into 5-year medium-term plans, called the RPJMN, each with different development priorities. The current medium-term development plan – the third phase of the long-term plan -- runs from 2015 to 2020, focusing, among others, on infrastructure development and improving social assistance programs in education and healthcare.  Such shifts in public spending has been enabled by a reform of long-standing energy subsidies, allowing for more investments in programs that directly impact the poor and near-poor, as well as vast improvements in infrastructure investment.

Considerable challenges remain in achieving Indonesia’s goals.

Due to weaker demand for commodities – the fuel for Indonesia’s economic boom in the past decade – Indonesia’s GDP growth has been slowing since 2012. The pace of growth in fixed investment, exports, and consumption, has slowed – and these developments have impacted the rate of poverty reduction.

The poverty rate declined by 1% annually from 2007 to 2011, but has fallen by an average of only 0.3 percentage points per year since 2012.  Out of a population of 252 million, 28.6 million Indonesians still live below the poverty line and approximately 40% of all people remain clustered around the national poverty line set at 330,776 rupiah per person per month ($22.60).

The slowdown has also impacted job creation, with employment growth slower than population growth. Public services remain inadequate by middle income standards, and this has led to alarming indicators in health and education.

For example, the maternal mortality rate in Indonesia is 126 maternal deaths per 100,000 live births, higher than the Millennium Development Goal of 102 maternal deaths per 100,000 live births. Some 37% of children under the age of 5 suffer from stunting, or short height, which reflects stunted brain development, affecting the children’s future opportunities.

And despite recent progress, access to hygienic toilet facilities currently stands at 68% of the population, significantly short of the MDG target of 86%.

The investment climate, though generally positive, faces continued regulatory uncertainties and high logistics costs. However, a series of reform packages shows that the government wants to convince investors that Indonesia is open for business.  The packages include a reduction of the Negative Investment List, a list of some 600 sectors that represent about 70% of the economy. The government has pledged further reforms. 

Last Updated: Apr 05, 2016

The partnership between Indonesia and the World Bank Group has evolved over six decades to become one of the Bank Group’s most significant in terms of lending, knowledge services and implementation support. Since 2004, World Bank support for Indonesia has moved towards supporting a country-led and owned policy agenda, consistent with Indonesia’s status as a middle-income country.

To remain responsive to the needs of Indonesia, the Bank Group continues to call on a broad range of instruments and knowledge services.

In December 2015, after broad consultations with government, civil society, and the private sector, the Board approved the new Country Partnership Framework (CPF) for Indonesia, aligned with the priorities of Indonesia’s medium-term development plan, the RPJMN. 

The CPF is expected to deliver more than $10 billion in support for Indonesia over the next four years – one of the largest country programs of the World Bank Group.  If fully implemented, IBRD lending would amount to about $7.5 billion, and the IFC would deliver $3 billion in equity, loans, guarantees, and mobilization. Four of the engagement areas of the CPF are related to infrastructure, including energy, an area of engagement where IBRD and IFC are working seamlessly. 

 

Engagement of the World Bank Group

International Finance Corporation (IFC), a member of the World Bank Group, has invested approximately $2.24 billion with 31 clients and programs.  The IFC is committed to improving access to finance for 1.6 million people and 5,000 small and medium enterprises, and to increase access to infrastructure for more than 8.5 million people. Through our work advising the Indonesian agribusiness sector, IFC helped improve the productivity of more than 11,000 smallholder farmers.

Last Updated: Apr 05, 2016

The World Bank’s flagship programs address urgent needs facing Indonesia.  The Generasi program provides incentivized block grants to communities, in order to address three lagging Millennium Development Goals: maternal health, child health, and universal education. Generasi is currently active in 5,488 villages throughout 11 provinces. Some of the program’s results include helping hundreds of thousands of children receive immunizations, addressing malnutrition, and ensuring nearly 1 million pregnant women receive iron supplements.  More than half of the 4.9 million beneficiaries annually are women or girls.

In education, the World Bank supported the government to implement its teacher reform plans. Under the Bermutu project launched since 2007, over 1.7 million teachers acquired the mandated 4-year college degree as required by the Teacher Law passed in 2005. The project supported further development for teachers through training, research, and establishment of professional working groups at the local level.

The World Bank is also supporting the government’s program to provide clean water and sanitation services, PAMSIMAS. Active across 32 provinces, PAMSIMAS is a collaboration between governments and communities, and widely considered to be the most cost-effective option for scaling up water and sanitation services. Over the next few years, PAMSIMAS will expand to serve 26,000 villages in around 403 districts.

Today, Indonesia is comprised of more than 500 autonomous local governments that have the potential to accelerate growth in the districts. The Local Government Decentralized Project works with local governments in ensuring that the transfers allocated by the central government for infrastructure investments are well spent, with improvements in transparency and accountability. Strong government buy-in has followed, and the output-verification approach is now being scaled up to 30 provinces nationwide, with an expected 450 districts participating by 2018.

The Bank tackles Indonesia’s considerable challenges in disaster risk management by leveraging existing engagements and financing instruments, as well as its access to international best practices. One successful approach actively involves communities in prevention and reconstruction efforts; the use of a free software by communities that produces realistic natural-hazard impact scenarios for better planning, preparedness, and response activities. Also, the success of community-based settlement rehabilitation, or Rekompak, prompted the government to adopt its template for nationwide community housing.

Recognizing the importance of helping those in need to help themselves, the World Bank also supports the government’s Family Hope Program, which strives to end the cycle of poverty among Indonesia’s poorest.  Family development sessions and learning materials jointly developed with World Bank assistance are included in the program, to help mothers have a better understanding of health and nutrition, good parenting practices, child protection and financial management.

Last Updated: Apr 05, 2016


LENDING

Indonesia: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments