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Emerging Indonesia: lessons for middle-income countries

March 8, 2011

  • Indonesia's re-emergence as a middle-income country has brought several lessons for knowledge exchange
  • To be relevant to middle-income countries, the World Bank not only provides financing services, but also knowledge and convening services
  • Indonesia now needs a new set of reforms to enable the country to progress even further

Washington, March 8, 2011 - Indonesia’s re-emergence as a middle-income country has brought several lessons which would be valuable to tap into for knowledge exchange among nations. In this spirit, the World Bank organized a series of seminars and knowledge events in Washington D.C. to capture lessons from the Indonesia story. The “Emerging Indonesia” series started on February 23rd and spanned for two weeks until March 3rd. The event culminated in a cultural evening with performances from Bank staff member and the Indonesian community in the DC area.

In her opening speech during the Discussion Panel organized together with the US-Indonesia Society (USINDO) on February, Sri Mulyani Indrawati, World Bank Managing Director, emphasized the importance of middle income countries. By the Bank’s classification, some 100 countries fall in this category which now account for 69 percent of the world’s population and 41 percent of its economic output. She added that, “To be relevant to middle-income countries such as Indonesia, the World Bank must not only provide financing services, but also knowledge and convening services.”

How the World Bank operates in Indonesia, one of its largest country programs, is perhaps best reflected by one of its largest partnership through the community driven development program, locally known as PNPM Mandiri. The program aims to empower communities, by providing resources directly to the community enabling them to determine their own development priorities and take charge of implementation while at the same time hold authorities accountable to ensure better results. The program has grown from being implemented at 3,525 villages in 1998, and then replicated throughout the country in 62,937 villages by 2011.

A separate sharing session showcased how Indonesia has become a regional resource on post-disaster recovery with models that can be replicated globally. These models include community based housing, mainstreaming disaster risk reduction, and the case of Aceh which links reconstruction with post-conflict programming. Through government leadership and broad partnership Indonesia has successfully responded to a number of natural disasters. However, as a country vulnerable to disasters Indonesia is increasing emphasis on prevention and preparedness.

Another exemplary initiative by Indonesia discussed in the sharing session was a health insurance for poor and near poor people, known as Jamkesmas. This program was designed to improve access to health care and provide financial protection. Its target coverage of about 36.1 million in 2005 rapidly scaled up in 2008 to cover 76.4 million people. No active enrollment is required, the poor and near poor are identified and automatically given cards. Jamkesmas is now the largest health insurance program in Indonesia and was a first bold step by the government to achieve universal coverage. Although the coverage has significantly increased, more efforts have to be made to reduce leakages of coverage received by the non-poor.

Economic progress has been a key factor for Indonesia’s rise as a middle-income country, and further progress may be hampered by the looming limitations in the power sector. In addition, heavy reliance on diesel and substantial expansion of coal causes significant environmental impact. With support from the World Bank group, Indonesia plans to meet energy demands by optimizing its huge geothermal potential with a proposed project aiming for a four-fold increase in geothermal capacity. In addition to clean energy, more use of geothermal will improve energy security by utilizing abundant national resource and hedging against volatile fossil-fuel prices.

With Indonesia’s achievements, the country now needs a new set of reforms which will enable it to progress even further. Many countries in Asia and Latin America have managed to surpass the low income threshold, but are unable to generate sustained growth needed to achieve a high-income status countries. Stefan Koeberle, World Bank Country Director for Indonesia reminded that, “Indonesia still faces significant challenges to sustain its growth and we would like to assist in making sure the country reaches its full potential.” One important issue that needs to be addressed by Indonesia is weak institutions for policy development and implementation despite vibrant democracy in the country. To help overcome these barriers, the World Bank will continue to support the government’s own development strategies and programs placing strong emphasis on fiduciary controls, accountability and technical excellence.