The World Bank In Indonesia

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.

Today, Indonesia is the world’s fourth most populous nation and 10^th largest economy in terms of purchasing power parity. Further, Indonesia has made enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to under 10 percent in 2019 before the COVID-19 pandemic hit.

Indonesia is pursuing a 20-year development plan, spanning from 2005 to 2025. The plan is segmented into 5-year medium-term development plans called RPJMN (Rencana Pembangunan Jangka Menengah Nasional), each with a different set of development priorities. The current plan, the last phase of the 20-year vision, aims to further strengthen Indonesia’s economy by improving the country’s human capital and competitiveness in the global market.

Indonesia successfully concluded the G20 Presidency in November 2022 and held the ASEAN chairmanship in 2023, showcasing leadership in representing developing nations’ interests and a capacity to play a more active and strategic role in working together with developed countries to achieve sustainable post-pandemic recovery and grow stronger amid global uncertainties. 

In July 2023 Indonesia regained upper-middle group according to the World Bank's income classification status after falling out in 2020 due to the impact of COVID-19 on the economy. With a post-pandemic recovery underway, poverty reduction has received a boost. As of March 2023, Indonesia’s poverty rate was at 9.36 percent, after having risen to 10.2 percent in September 2020.

According to the World Bank’s October 2023 economic report, Indonesia’s economic growth is underpinned by a pick-up in private consumption and positive terms-of-trade. GDP growth is projected at 5.0 percent in 2023 and to an average of 4.9 percent over the medium term in 2024-2026. Nevertheless, downside risks from the global economic environment are high and could weigh on Indonesia’s growth if they materialize.

Indonesia achieved a notable success in reducing its stunting rate from 37 percent in 2013 to 21.6 percent in 2022. However, more work remains to be done to ensure strong and productive human capital development. 

A World Bank study revealed that the loss of learning caused partly by the closing down of schools during the COVID-19 pandemic would be equivalent to about 11 months of loss in language and math among fourth grade students, and would have repercussions for Indonesia's next generation if the losses are not remediated.

In Indonesia, climate change is likely to impact water availability, health and nutrition, the ability to manage disaster risk, and urban development, particularly in coastal zones, with implications for poverty and inequality. Indonesia represents the third largest tropical rainforest in the world (94.1 million hectares) and is home to the world’s largest tropical peatlands (14.9 million hectares) and mangrove forests (3.36 million hectares). These natural resources store vast amounts of carbon that mitigate climate change impacts, are crucial to sustain the livelihoods of Indonesians, and support the country’s long-term development.

The World Bank supports Indonesia’s climate mitigation and adaptation measures to deliver impactful climate action in the sectors of land use, oceans, and energy, and by mobilizing climate finance. The World Bank’s activities include support for the government’s National Mangrove Program and the design and implementation of carbon pricing instruments, which can play a critical role in increasing financing for climate action.

Last Updated: Oct 20, 2023

The partnership between Indonesia and the World Bank has evolved over six decades. Indonesia is now one of the Bank’s most significant partners in terms of operations, knowledge services, and implementation support. Since 2004, the World Bank’s partnership with Indonesia has evolved toward supporting a country-led and country-owned policy agenda, consistent with Indonesia’s status as a middle-income country.

In May 2021, after the completion of the Systematic Country Diagnostics (SCD) for Indonesia and broad consultations with the government, civil society, and the private sector, a new Country Partnership Framework (CPF) for 2021-2025 was put in place. The CPF is aligned with the priorities of Indonesia’s medium-term development plan, the RPJMN.

The CPF is supporting the government of Indonesia to promote inclusive and sustainable economic recovery from the COVID-19 pandemic and achieve long-term economic growth. It is built around four engagement areas:

1. Strengthening economic competitiveness and resilience
2. Improving infrastructure
3. Nurturing human capital
4. Sustaining management of natural assets, natural resources-based livelihoods, and disaster resilience

Three cross-cutting themes: digitalization, gender, and climate change will run across the four engagement areas and are mainstreamed across all activities under the CPF.

Last Updated: Oct 20, 2023

Through the fully disbursed COVID-19 emergency response financing and additional financing, the World Bank and its partners, including Asian Infrastructure Investment Bank (AIIB), the German state-owned investment and development bank (KfW), and the Government of Australia have been supporting Indonesia to strengthen the country’s response to the COVID-19 pandemic. Key achievements through this financing include the rollout of a national free vaccination program for adults, the securing of multiple sources of vaccine supplies, expanding the PCR network from 49 to more than 1,100 testing labs (March 2020 - June 2023), over a two-fold increase in hospital capacity for isolation and critical care beds, as well as the government’s continued commitment to cover COVID-related treatment costs for all.

Promoting human capital is an important priority for Indonesia. The National Strategy to Accelerate Stunting Prevention, which was informed by advice from the World Bank and supported by the Investing in Nutrition and Early Years (INEY) Program, has reduced the national stunting rate by 9.2 percentage points in its four years of implementation since 2018. In 2022, the National Strategy to Accelerate Stunting Prevention (Stranas Stunting) has been rolled out to 514 districts in Indonesia. The duration and scope of INEY program is now being expanded.

Since 2018, the I-SPHERE program has laid a foundation for the broader Ministry of Health's transformation agenda, especially on quality of primary health care, interoperability of health information systems, and a focus on financial management capacity at the subnational level. More than 1,800 primary health care facilities (Puskesmas) received a higher accreditation for their improved quality and performance of health services, and over 1,000 health worker teams have been deployed in Indonesia's remote areas.

Indonesia’s health system also aims to increase notification and completion of treatment for Tuberculosis (TB) cases. The World Bank provides financial support to improve the coverage, quality and efficiency of TB response, and is helping the Indonesian Government to move towards its goal of reducing new TB cases by 90 percent by 2030.

The World Bank is supporting Indonesia to strengthen the quality and efficiency of its National Health Insurance program (JKN), as part of the efforts to improve health care delivery, expand coverage, provide financial protection and invest in Indonesia’s human capital. All of JKN’s approximately 250 million beneficiaries, 40 percent of whom are poor or near poor, are expected to benefit from these improvements.

Since its launch in 2015, the World Bank has supported the design, implementation, and coverage expansion of the National Social Security Scheme, which provides protections against employment-related risks. Through a Human Capital Development Policy Loan in 2022, the World Bank has been a critical contributor to the recently launched unemployment insurance program (JKP) which provides a temporary cash benefit and re-employment support for those facing lay-offs. 

The World Bank’s 2017 support to the government’s Family Hope Program or Program Keluarga Harapan (PKH), which provides cash transfers to poor beneficiary households to encourage use of maternal and child-related health services and incentivized school attendance and enrollment, has resulted in, among others, expanded coverage and benefit levels increased school enrollment, and continued behaviors in education and health after receiving the program’s intervention.  Further, in 2020, as part of COVID-19 response, the World Bank provided additional financing for social assistance reform program which temporarily topped-up cash transfers to existing PKH beneficiaries.

The Realizing Education’s Promise project has supported improvements to Indonesia’s primary and secondary education schools under Ministry of Religious Affairs (MORA). A total of 5,576 Islamic schools (madrasahs) each received grants of IDR150 million (US$10,000) to improve learning environment and 7,847 facilities (by end of 2023), and 9,163 peer working groups were formed for teachers’ professional development. Student’s learning outcomes are monitored through competency-based assessments implemented in 24,861 primary level madrasahs, whose result was used for further improvement of teaching quality.

The World Bank assists Indonesia in bolstering its financial response to natural disasters through the Disaster Risk Finance and Insurance (DRFI) Project and Indonesia Infrastructure Financial Facility (IIFF) Project. While the DRFI Project lets the World Bank, among others, support the government to design and implement financial solutions to manage disasters and shocks related to climate change, the IIFF Project allows the World Bank to mobilize private investment for climate resilient infrastructure. Together with the Asian Development Bank and International Finance Corporation, the World Bank is involved in activities such as mainstreaming of climate change adaptation investments.

The World Bank’s Sustainable Landscape Management Program assists the government in reducing deforestation and forest degradation and promoting more equitable growth through the sustainable use of forest resources. The Program to Accelerate Agrarian Reform, which aims to support Indonesia in providing clarity on land rights and land use in the non-forest areas of Sumatra and Kalimantan, had registered more than one million land parcels in non-forest areas by 2021.

To strengthen the country’s efforts to increase the financing for climate action in Indonesia, the World Bank supports the government’s carbon pricing instruments and started a results-based payment commitment to support reduction of emissions from deforestation through the East Kalimantan Jurisdictional Emissions Reductions Program. As part of this program, an advance payment of US$20.9 million was made to Indonesian Government on November 8, 2022.

Given the critical role mangroves play for carbon storage and coastal resilience, the World Bank supports the government’s National Mangrove Program  through the Mangroves for Coastal Resilience (M4CR) project, aimed to enhance the management of mangroves and the livelihoods of local communities in selected coastal landscapes. The project’s goals are to restore 75,000 hectares of mangroves and benefit 650,000 people in four provinces.

To encourage Indonesia’s transition to blue economy, the World Bank implements the Indonesia Sustainable Oceans Program (ISOP). Enacted in March 2022, the program has helped improve the effectiveness of Marine Protected Area (MPA) management and helped communities protect critical ecosystems. The World Bank has started the Oceans for Prosperity Project (LAUTRA) to enhance the sustainable management and financing of selected coral reefs and associated ecosystems, and access to economic opportunities for local communities in target areas.

Through the Improving Waste Management to Support Regional and Metropolitan Cities Project (ISWMP), the World Bank supports the government in improving solid waste management services for urban populations in selected cities across Indonesia. This includes institutional and policy development, integrated planning support and capacity building for local governments and communities, and waste infrastructure and services. In 2023, the project invested integrated waste infrastructure (TPSTs) in eight cities and districts in the Citarum Watershed in West Java and three TPSTs in Denpasar City. The project further expanded its area to six new cities and regencies (Padang, Cilegon, Depok, Indramayu, Tuban, Gianyar).

Last Updated: Oct 20, 2023