ADB-Indonesia Partnership

The biggest country in Southeast Asia, Indonesia also has one of the largest and strongest economies in the region. Amid a lackluster performance by various developing nations, Indonesia’s economy remained strong in 2012, posting 6.2 percent growth year on year. But Indonesia’s economy has slowed down this year. From an optimistic estimate of 6.2 percent growth for 2013, the World Bank downgraded projections to just 5.3 percent. While Indonesia’s economy was affected by external drivers, weak exports and a deceleration in foreign direct investments are the main factors contributing to lower economic forecasts. The slowdown in Indonesia’s economy is exacerbating the challenges the country is currently facing in addressing its development challenges, including meeting Millennium Development Goals. The country is not expected to achieve targets on reducing maternal mortality and HIV and AIDS incidences, and ensuring environmental sustainability. And although Indonesia’s poverty indicators show marked improvement, more than half of its population continues to live on less than $2 a day. Weak governance and insufficient employment opportunities are major challenges as well. Despite strong expansion in the past two years, economic growth in Indonesia has not translated into quality jobs. At present, the informal sector provides 60 percent of available jobs. In addition, about one-third of the labor force is unemployed. Through its pro-poor, pro-jobs, pro-growth and pro-environment strategy for Indonesia, the Asian Development Bank aims to help the country address these challenges. Funding levels For the 2009-2014 funding period, ADB has allocated $6.3 billion worth of lending and nonlending assistance. Below is a breakdown of ADB’s development funding contributions Indonesia for the period: Click on image to view a larger version ADB coordinates with implementing agencies directly and supports capacity-building activities to improve effectiveness of development projects. The bank works to ensure alignment of development objectives with those set in the government’s second National Medium-Term Development Plan and use country systems in managing foreign aid funding. Funding priorities ADB, which works in partnership with the government of Indonesia, will be supporting the following sectors during the 2013-2017 funding period: Click on image to view a larger version Some ADB initiatives launched in Indonesia this year include: - Polytechnic Education Development Project, which is intended to improve the quality and relevance of polytechnic education and increase access to this institution to ultimately contribute to the achievement of national socio-economic goals. - Improving Water Planning, Management, and Development in Indonesia, which is designed to address water management policies and provide strategic support to the economic development strategies in Java and Sumatra. - Sustainable Infrastructure Assistance Program in Indonesia, which aims to address the lack of needed infrastructure in the urban areas of Java and the rural islands in the eastern region of Indonesia. - Sustainable Forest and Biodiversity Management in Borneo, which seeks to strengthen institutional capacity in natural resource management and thereby promote the sustainable use of forest resources in the region. Devex analysis Although classified as a middle-income country, Indonesia’s main challenge is to ensure the stability of its economy. Mitigating vulnerability to external shocks is another issue Indonesia needs to address. And despite progress made in strengthening its financial system, Indonesia still suffers from weak socio-economic fundamentals. Indonesia hopes to address all of these challenges through its national development strategy. For this reason, ADB — along with other development agencies such as the Japan International Cooperation Agency and World Bank — has committed to a $5.5 billion contingency loan program that aims to support Indonesia’s efforts to prioritize spending and stimulate domestic demand. The program also serves as a stop-gap measure in case there are budget shortfalls and a way to mitigate external risks from a volatile global market. As part of the envisioned economic reforms, ADB is working closely with the Association of Southeast Asian Nation nations to create a regional semi-integration of banking systems. This could address capital deficits by freeing up financial systems and increase interregional trade in the long term. Indonesia forms part of the ASEAN 5 group for banking integration, along with the following founding member countries: Malaysia, the Philippines, Singapore and Thailand. Encouraging greater investor participation and promoting more inclusive financial services could also help boost investments in infrastructure and social services, sectors that are critical to Indonesia’s sustained growth. ADB is Indonesia’s primary development partner and is second only to the World Bank in terms of official development assistance. ADB has been cultivating a close strategic partnership with Indonesia over the past two decades. Contacts Indonesia Resident Mission Tel: (62-21) 251-2721 Fax: (62-21) 251-2749 Join the Devex community and access more in-depth analysis, breaking news and business advice — and a host of other services — on international development, humanitarian aid and global health.