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 GDP per capita has steadily risen, from $857 in the year 2000 to $3,603 in 2016. 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.  An emerging middle-income country, Indonesia has made enormous gains in poverty reduction, cutting the poverty rate to more than half since 1999, to 10.9% in 2016.

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 social assistance programs related to education and health-care.  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.

Considerable challenges remain in achieving Indonesia’s goals.

A continued slump in demand for commodities – the fuel for Indonesia’s economic boom in the past decade – has led to moderating GDP growth. Trade has slowed, as has expansion of fixed investment, and domestic consumption – long the main driver of growth – is also less buoyant. These developments have led to a slower pace of poverty reduction.

While the poverty rate declined by 1% annually from 2007 to 2011, since 2012 poverty has declined by an average of only 0.3 percentage points per year. Hence out of a population of 252 million, more than 28 million Indonesians still live below the poverty line. Approximately 40% of the entire population remain vulnerable of falling into poverty, as their income hover marginally above the national poverty line.

Another challenge to efforts at reducing poverty – and to the 1.7 million youth who enter the workforce each year – is the slower pace of job creation. Employment growth is now slower than population growth.

While there are greater efforts at improving basic public services, the quality of health clinics and schools is uneven by middle income standards, contributing to alarming indicators, particularly in health.

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. 1 in 3 children under the age of 5 suffer from stunting, or shorter height, which reflects impaired brain development that will affect the children’s future opportunities. If not reversed, the gap between rich and poor, already increasing in recent years, may widen. At 0.40, Indonesia’s GINI coefficient – a measure of inequality - is higher than in neighboring countries.

In order to strengthen the investment climate and economic growth, the government continues to announce policy reforms intended to ease red-tape. Investors welcome the policy reforms, which include opening up sectors for investment and reducing high logistics costs. 

Last Updated: Apr 10, 2017

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 over the next four years one of the largest country programs of the World Bank Group.  If fully implemented, IBRD lending and the IFC would deliver $10 billion in equity, loans, guarantees, and mobilization. Four of the engagement areas of the CPF are focused on strengthening Indonesia’s infrastructure sector, 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 10, 2017

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, reaching nearly 5 million people. 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.

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.

With increasing growth of the country’s urban population, the Bank is helping address the lack of local infrastructure in urban slums using a community-driven approach. The PNPM Urban program has helped over 30 million people build or rehabilitate infrastructure in their communities, including roads and water supply facilities. The program also boosts incomes by providing micro-credit services and training in financial management. PNPM Urban is part of PNPM Mandiri, the government’s largest community-driven development program which was active in 6,000 sub-districts and 70,000 villages across the country.

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, which helped build and repair more than 300,000 houses in post-disaster communities, 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. The program is currently assisting 3.5 million families improve the education and health outcomes of their children, and the government plans to expand the program to reach 6 million families in 2017.

Last Updated: Apr 10, 2017


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

*Amounts include IBRD and IDA commitments