Indonesia

Overview

Indonesia is a lower middle-income country with a wealth of natural resources. With a population of 232.5 million, Indonesia contains the largest Muslim population in the world. Indonesia has wide inequalities, deep poverty, and significant regional disparities. It is highly vulnerable to economic crises and natural disasters.

Indonesia ranks 124 out of 187 on the United Nations Development Programme's 2011 human development index, and data show that 29.4 percent of the population lived on less than US$1.25/day in 2007.

In the early 1990s, the rapid growth of the country's industrial sector contributed to high economic returns. However, the country was affected severely by the 1997 Asian financial crisis and had only recently regained its previous economic levels. While the current global recession does pose threats to recent gains, Indonesia is weathering the crisis relatively well so far with a 4.5 percent growth in 2009.

Indonesia's growth and stability have been bolstered by substantial political, economic, and institutional reforms. The 2009 legislative and presidential elections were free and fair. Human rights are improving but certain concerns remain. National indicators show that the country is on track to meet many development goals. Still, regional disparities among provinces and districts remain a key development challenge for Indonesia. Living in a highly decentralized country, Indonesians are dependent on how well their local government delivers services and on the extent to which local economic growth is promoted.

The economy in Indonesia is largely dependent on natural resources, accounting for more than 50 percent of jobs. Sustainable management of natural resources is another key development challenge, given that the majority of the poor live in rural areas and depend on natural resources for their incomes.

In addition to the rural-urban divide, disparities also exist between women and men in Indonesia. Even though women are beginning to enjoy greater equality with men, they are still largely excluded from the decision-making processes within society. Their access to services and economic opportunities also remains restricted.

Thematic Focus

In 2009, as part of Canada's new aid effectiveness agenda, Indonesia was selected by CIDA as a country of focus. CIDA's program in Indonesia is aligned with the Government of Indonesia's priorities. It supports sustainable economic growth to help the country reduce its vulnerability to poverty. CIDA concentrates on Sulawesi, Indonesia's third most populous island and a driving force for change in the poorest region of Eastern Indonesia.

The Government of Indonesia has outlined a number of development priorities in their five-year medium term development plan (in Indonesian) and other important policy documents. These priorities include:

• Strengthening the government's ability to provide services
• Improving the quality of human resources
• Enhancing the capacity of science and technology development and strengthening economic competitiveness
• Continuing reforms related to economic growth in the regions
• Improving management of natural resources
• Successfully implementing decentralization

Economic growth

The goals and objectives of CIDA's strategy for Indonesia are to support sustainable economic growth by:

• Working with national and local partners to strengthen local and regional economic planning and programming
• Promoting improved management of renewable resources in support of local and regional economic development

Local and regional economic planning and programming in key economic sectors such as infrastructure, industry, and agriculture is the responsibility of local governments. Better performance by these governments will have a real impact on sustainable economic growth.

With increasing pressure on marginally productive and fragile natural resources, improved and sustainable management of these resources can support sustainable economic growth and directly contribute to raising incomes for the poor.

Equality between women and men, environmental sustainability, and good governance will be integrated into all of CIDA's programs in Indonesia. Continuous dialogue and consultation among development partners (government, non-government, and donors) will guide investment choices.

Progress on Aid Effectiveness

Through the Jakarta Commitment: Aid for Development Effectiveness-Indonesia's Road Map to 2014 (PDF, 87 KB, 14 pages), Indonesia is addressing commitments to the Paris Declaration on Aid Effectiveness (PDF, 317 KB, 23 pages).

The main elements of the Jakarta Commitment are:

• Strengthening local ownership
• Building more effective and inclusive partnerships
• Delivering and accounting for results

CIDA, along with a number of international donors, are working with the Indonesian government to help implement the 2009 Jakarta Commitment.

Accomplishments 2009-2010

Economic growth

• Support decentralization to local levels of government, resulting in harmonized regulations related to administrative and program delivery activities, as well as the dissemination of a model accounting policy to 480 local governments and the implementation of a system to monitor and evaluate local government performance in program and service delivery
• Supported Indonesian tax administrative reforms that increased the number of registered taxpayers from four million to 16 million and established more than 300 decentralized customer service-focused taxpayer offices
• Helped more than 26,500 villagers participate in decisions that have an impact on their income, through the Environmental Governance and Sustainable Livelihoods Project
• Helped to protect a large mangrove forest from being converted into shrimp ponds, resulting in the protection of fish and marine wildlife, two sources of income for local communities

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