Country Partnership Strategy

September 2020

Indonesia, 2020–2024
—Emerging Stronger

Distribution of this document is restricted until it has been endorsed by the Board of Directors.
Following such endorsement, ADB will disclose the document to the public in accordance with
ADB's Access to Information Policy.
 CURRENCY EQUIVALENTS
(as of 1 September 2020)

Currency unit – rupiah (Rp)

Rp1.00 = $0.000069
$1.00 = Rp14,590

ABBREVIATIONS

ADB – Asian Development Bank

ASEAN – Association of Southeast Asian Nations
BAPPENAS – Badan Perencanaan Pembangunan Nasional
(National Development Planning Agency)
COVID-19 – coronavirus disease
CPS – country partnership strategy
GDP – gross domestic product
MSME – micro, small, and medium-sized enterprise
OP – operational priority
PPP – public–private partnership
RPJMN – Rencana Pembangunan Jangka Menengah Nasional
(National Medium-Term Development Plan)
SDG – Sustainable Development Goal
SERD – Southeast Asia Department
SOE – state-owned enterprise
TA – technical assistance

NOTE

In this report, “$” refers to United States dollars.

Vice-President Ahmed M. Saeed, Operations Group 2

Director General Ramesh Subramaniam, Southeast Asia Department (SERD)
Country Director Winfried F. Wicklein, Indonesia Resident Mission (IRM), SERD

Team leader Yurendra Basnett, Country Economist, IRM, SERD

Team members Benita Ainabe, Financial Sector Specialist (Capital Markets), Public
Management, Financial Sector, and Trade Division (SEPF), SERD
Priasto Aji, Senior Economics Officer, IRM, SERD
Emma Allen, Country Economist, IRM, SERD
Syarifah Aman-Wooster, Principal Social Development Specialist
(Safeguards), Energy Division (SEEN), SERD
Joven Z. Balbosa, Advisor, Office of the Director General (SEOD),
SERD
Robert Boothe, Senior Public Management Specialist, SEPF, SERD
Elizabeth A.C. Burges-Sims, Senior Social Development Specialist
(Gender Development), Human and Social Development Division
(SEHS), SERD
Anastasia Carolina, Senior Project Officer (Urban Development), IRM,
SERD
Kin Wai Chan, Public–Private Partnership Specialist, Advisory Division
1 (OPA 1), Office of Public–Private Partnership
Shannon Christine Cowlin, Principal Energy Specialist, Energy Division
(EAEN), East Asia Department (EARD)
Jacobo De Leon Dovale, Senior Investment Specialist, Private Sector
Financial Institutions Division (PSFI), Private Sector Operations
Department (PSOD)
David M. Dovan, Senior Investment Specialist, Infrastructure Finance
Division 2 (PSIF2), PSOD
Yesim Elhan-Kayalar, Advisor, Office of the Chief Economist and
Director General (EROD), Economic Research and Regional
Cooperation Department (ERCD)
Anna Fink, Economist (Regional Cooperation), Regional Cooperation
and Integration Thematic Group, Sustainable Development and
Climate Change Department (SDCC)
Andrew Fransciscus, Programs Officer, IRM, SERD
Jonathan P. Grosvenor, Advisor and Head, Treasury Client Solutions
Unit, Treasury Department (TD)
Nao Ikemoto, Principal Portfolio Management Specialist, IRM, SERD
Mohd Sani Mohd Ismail, Senior Financial Sector Specialist, SEPF,
SERD
Poornima Gayangani Wasana Jayawardana, Financial Sector
Specialist, SEPF, SERD
Choon Sik Jung, Senior Energy Specialist, SEEN, SERD
Aruna Kumuduni Wanniachchi Kankanamalage, Senior Energy
Specialist, SEEN, SERD
Sameer Khatiwada, Social Sector Specialist (ICT), SEHS, SERD
Florian Kitt, Energy Specialist, SEEN, SERD
Keiko Koiso, Senior Procurement Specialist, Procurement Division 2,
Procurement, Portfolio, and Financial Management Department
(PPFD)
Toru Kubo, Principal Climate Change Specialist, SEEN, SERD
Helena Lawira, Senior Project Officer (Water Sector), IRM, SERD
Juliette Nicole Leusink, Senior Investment Specialist, PSIF2, PSOD
Susan Lim, Senior Transport Specialist, Transport and Communications
Division (SETC), SERD
Sevil Maharramova, Financial Management Specialist, Public Financial
Management Division (PFFM), PPFD
Dennie Mamonto, Environment Officer, IRM, SERD
Naning Mardiniah, Senior Safeguards Officer (Resettlement), IRM,
SERD
Anouj Mehta, Principal Infrastructure Specialist, SEOD, SERD
Thiam Hee Ng, Principal Economist, Regional Cooperation and
Operations Coordination Division (SERC), SERD
Hung Ba Nguyen, Trade Specialist, SEPF, SERD
David Oldfield, Principal Planning and Policy Specialist, Strategy,
Policy, and Partnerships Department
Ira Palupi, Senior Project Officer (Infrastructure), IRM, SERD
Lynnette Perez, Senior Education Specialist, SEHS, SERD
 Amr Qari, Principal Infrastructure Specialist, IRM, SERD
Eric Quincieu, Senior Water Resources Specialist, Environment,
Natural Resources and Agriculture Division, SERD
Arief Ramayandi, Principal Economist, Macroeconomics Research
Division, ERCD
Myra Evelyn P. Ravelo, Senior Financial Management Officer, PFFM,
PPFD
Susann Roth, Principal Knowledge Sharing and Services Specialist,
Knowledge Advisory Services Center, SDCC
Arghya Sinha Roy, Senior Climate Change Specialist (Climate Change
Adaptation), Climate Change and Disaster Risk Management
Division, SDCC
Jason Rush, Principal Operations Communications Specialist, SERC,
SERD
Tsuneyuki Sakai, Project Administration Unit Head, SETC, SERD
Azusa Sato, Social Sector Specialist, SEHS, SERD
Deeny Simanjuntak, Senior Project Officer, IRM, SERD
Suharyani, Senior Procurement Officer, IRM, SERD
Olga Suyatmo, Senior Procurement Officer, IRM, SERD
Elaine Thomas, Senior Social Development Specialist (Civil Society and
Participation), NGO and Civil Society Center, SDCC
Joris van Etten, Senior Urban Development Specialist, Urban
Development and Water Division, SERD
Sutarum Wiryono, Senior Project Officer (Education), IRM, SERD
Yuichiro Yoi, Principal Investment Specialist, PSIF2, PSOD
Said Zaidansyah, Deputy Country Director, IRM, SERD
Dulce M. Zara, Senior Regional Cooperation Officer, SERC, SERD
Peer reviewers Muhammad Chatib Basri, President Commissioner of PT Bank Mandiri
and Senior Lecturer at the University of Indonesia (external)
Bruno Carrasco, Chief of Governance Thematic Group, Governance
Thematic Group, SDCC
Muhammad Ehsan Khan, Senior Advisor, Office of the Director
General, Central and West Asia Department

In preparing any country partnership strategy, financing any project, or by making any designation
of or reference to a particular territory or geographic area in this document, the Asian
Development Bank does not intend to make any judgments as to the legal or other status of any
territory or area.
 CONTENTS

Page
COUNTRY AT A GLANCE
I. COUNTRY PARTNERSHIP STRATEGY SNAPSHOT 1
II. COUNTRY DEVELOPMENT CONTEXT 2
III. COUNTRY STRATEGY FRAMEWORK 7
A. Lessons from Previous Strategy 7
B. National Development Strategy 7
C. Role of Development Partners 8
D. ADB’s Strategic Objectives and Operational Priorities 8
E. Priorities for Knowledge Support 14
IV. STRATEGY IMPLEMENTATION 14
A. Indicative Resource Parameters 14
B. Implementation Priorities 14
C. Monitoring of Results 16
D. Risks 16

APPENDIXES
1. Country Partnership Strategy Results Framework 17
2. Country Knowledge Plan 19
3. List of Linked Documents 23
 COUNTRY AT A GLANCE

Economic 2015 2016 2017 2018 2019

GDP ($ billion, current) 860.9 931.9 1,015.4 1,042.2 1,119.2
GDP per capita ($, current) 3,331.7 3,562.8 3,836.9 3,893.6 4,175.0
GNI per capita ($, atlas method) 3,430.0 3,400.0 3,530.0 3,840.0 4,050.0
GDP growth (%, in constant prices) 4.9 5.0 5.1 5.2 5.0
Agriculture 3.8 3.4 3.9 3.9 3.6
Industry 3.0 3.8 4.1 4.3 3.8
Services 5.5 5.7 5.7 5.8 6.4
Gross domestic investment (% of GDP) 34.1 33.9 33.7 34.6 33.8
Gross domestic saving (% of GDP) 32.8 32.6 32.2 32.3 32.3
Consumer price index (annual % change) 6.4 3.5 3.8 3.2 3.0
Liquidity (M2) (annual % change) 9.0 10.0 8.3 6.3 6.5
Overall fiscal surplus (deficit) (% of GDP) (2.6) (2.5) (2.5) (1.8) (2.2)
Merchandise trade balance (% of GDP) 1.6 1.6 1.9 0.0 0.3
Current account balance (% of GDP) -2.0 -1.8 -1.6 -2.9 -2.7
External debt service (% of exports of goods and services) 30.6 35.4 25.5 25.1 26.0
External debt (% of GDP) 36.1 34.3 34.7 36.0 36.1

Poverty and Social 2010 Latest Year

Population (million) 238.5 268.0 [2019]
Population growth (annual % change) 1.3 1.2 [2019]
Maternal mortality ratio (per 100,000 live births) 359 [2012] 305 [2015]
Infant mortality rate (below 1 year/per 1,000 live births) 32 [2012] 24 [2017]
Life expectancy at birth (years) 68.9 71.2 [2018]
Adult literacy (%) 92.9 95.7 [2018]
Primary school gross enrollment (%) 111.6 108.5 [2018]
Child malnutrition (% below 5 years old) 17.9 19.6 [2013]
Population below national poverty line (%) 13.3 9.2 [2019]
Population using at least basic drinking water (%) 84.3 89.3 [2017]
Population using at least basic sanitation services (%) 60.0 73.1 [2017]

Environment Latest year

Carbon dioxide emissions (million tons) 464.2 [2014]
Carbon dioxide emissions per capita (tons) 1.8 [2014]
Forest area (million hectares) 90.3 [2016]
Urban population (% of total population) 55.3 [2018]

ADB Portfolio (active loans)a As of 31 December 2019

Total number of loans 29
Sovereign 21
Nonsovereign 8
Total loan amount ($ million)b 4,375.0
Sovereign 3,175.1
Nonsovereign 1,199.9
Disbursements
Disbursed amount ($ million, 2019) 597.9
Sovereign 295.2
Nonsovereign 302.7
Percentage disbursed (disbursed amount/net loan amount)
Sovereign 9
Nonsovereign 25
ADB = Asian Development Bank, GDP = gross domestic product, GNI = gross national income, M2 = broad money,
OCR = ordinary capital resources.
a Covers OCR financing for projects and programs, excluding policy-based lending that were already financially closed.

Cumulative data since 1966 is available in ADB and Indonesia: Fact Sheet.
b
Net of droppages and cancellation.
Sources: Asian Development Bank, Statistics Indonesia, and World Development Indicators (WDI) database (accessed
January 2020).
 I. COUNTRY PARTNERSHIP STRATEGY SNAPSHOT

1. Challenges. Indonesia has made remarkable development strides in the 21st century,
including sustained economic growth and reduction of the poverty rate to single digits. An upper
middle-income country, Indonesia aspires to be a high-income country by 2045, while avoiding
the middle-income trap. However, the progress made thus far and Indonesia’s upward
development trajectory are at risk of reversal because of the enormous impact of the coronavirus
disease (COVID-19) pandemic on lives, livelihoods, and the economy. In the near term, urgent
public health measures as well as the expansion of social and economic assistance will be
needed. As part of its economic recovery strategy, Indonesia will have to overcome its long-
standing development challenges, including human development constraints and a lack of
competitiveness, manage climate change and disaster risks, and achieve environmental
sustainability, including building back greener. In tackling these challenges, Indonesia must
navigate a medium-term context of heightened economic uncertainty, while managing emerging
megatrends such as climate change, technological disruptions, demographic changes, rapid
urbanization, and shifting economic powers.

2. Strategy. The proposed Asian Development Bank (ADB) country partnership strategy
(CPS) for Indonesia, 2020–2024 aims to support inclusive, competitive, and sustainable
development. It is geared toward helping Indonesia emerge stronger from the COVID-19
pandemic by focusing on three strategic pathways: (i) improving well-being—by strengthening the
health care system, expanding social protection, advancing educational quality in an equitable
manner, and developing workforce skills; (ii) accelerating economic recovery—by supporting
economic policy and structural reforms, domestic resource mobilization, financial market
deepening and inclusion, and the development of high-quality infrastructure; and
(iii) strengthening resilience—by supporting climate change mitigation and adaptation measures,
environmental sustainability and green recovery, disaster risk management and finance, and
water and food security. Support to the COVID-19 recovery is an overarching theme, under which
ADB will incorporate the following crosscutting priorities in its operations: (i) private investment
and innovative financing; (ii) gender equality and socially inclusive approaches; (iii) enhanced
governance and institutional capacity; (iv) digitalization and technological transformation; (v) local
and regional economic development; (vi) regional cooperation and integration; and (vii)
achievement of the Sustainable Development Goals (SDGs). The CPS is fully aligned with
Indonesia’s National Medium-Term Development Plan (RPJMN), 2020–2024; ADB’s Strategy
2030; and the SDGs.

3. Approach. Given the medium-term context of elevated uncertainty, the CPS provides a
flexible and agile framework for ADB operations to support Indonesia’s evolving needs and
priorities. ADB’s financial assistance, knowledge solutions, and technical support will pivot toward
COVID-19 response, recovery, and building back better. ADB will be responsive to increased
demand for financial support and seek to leverage its financing by attracting private sector
investment, catalyzing official cofinancing, and applying innovative financing approaches. It will
intensify its knowledge work and policy dialogue with the government, and advance partnerships
with the public and private sectors, academe and think tanks, civil society, and other development
partners. It will use innovative technologies, approaches, and processes in its operations to the
greatest extent possible. In delivering the strategy, ADB will bring to bear its full suite of support
modalities in an integrated manner and as “One ADB”. ADB will adopt mitigating measures
tailored to ensuring business continuity in this period of disruption related to COVID-19.
2

II. COUNTRY DEVELOPMENT CONTEXT

4. Country background. Indonesia is Southeast Asia's largest economy, with a nominal

gross domestic product (GDP) of more than $1 trillion. It is the world’s fourth most populous
country (268 million people), and the world’s largest archipelagic nation with a high degree of
biodiversity and cultural diversity. A Group of Twenty (G20) member, Indonesia has the seventh-
largest economy in the world in terms of purchasing power. With its relatively young population,
more than two-thirds of its inhabitants are projected to be of productive age (15–64 years) in 2030
(Box 1).1

5. COVID-19. The COVID-19

Box 1:
pandemic has caused an Selection of Country Partnership Strategy
unprecedented, multidimensional Background Studies
crisis. The government faces
challenges in balancing health and The following studies informed the preparation of the
economic impacts, and managing the Country Partnership Strategy:
economic disruptions arising from (i) Indonesia and the Asian Development Bank: Fifty
measures to curb the spread of the Years of Partnership
disease. The focus on flattening the (ii) Policies to Support the Development of
pandemic curve has led to adverse Indonesia’s Manufacturing Sector during 2020–
2024
impacts on jobs and livelihoods in
(iii) Innovate Indonesia: Unlocking Growth Through
Indonesia, placing a particularly heavy Technological Transformation
burden on the most vulnerable (iv) Skills and Training for Industry 4.0
segments of society, including women, (v) Diagnostics of the Social Protection System
and increasing poverty. The human toll (vi) Indonesia: Enhancing Productivity through
of a health care system that is unable Quality Jobs
to cope with a pandemic of the current (vii) The Evolution of Indonesia’s Participation in
scale in an environment with Global Value Chains
substantial regional inequality has (viii) Reforms, Opportunities, and Challenges for
become evident since March 2020 State-Owned Enterprises
(ix) Climate Risk Country Profile: Indonesia
when the first COVID-19 case was
(x) Independent Assessment of Indonesia’s Energy
identified. The costs of the health crisis, Infrastructure Sector
coupled with a sharp global economic (xi) Policies to Support Investment Requirements of
slowdown that may continue for several Indonesia’s Food and Agriculture Development
years, make the path to economic during 2020–2024
recovery long and arduous. A (xii) Summary of Indonesia’s Private Sector
concerted government policy Development Assessment
framework that combines critical public (xiii) Public Financial Management Systems—
health measures with creative Indonesia
economic policies is needed to manage (xiv) SDG Country Implementation Snapshot and
Financing Roadmap
the pandemic and support the recovery
_____________________
efforts, while structural reforms will be Source: Asian Development Bank.
needed to thrive in the post-COVID-19
world.

6. Social development. Indonesia has made remarkable progress in combating poverty,

more than halving the share of people living below the national poverty line from 23.4% in 1999
to 9.2% in 2019.2 But a sizable proportion of the population is clustered marginally above the

1 Inclusive and Sustainable Growth Assessment (accessible from the list of linked documents in Appendix 3).
2 Badan Pusat Statistik (BPS, Statistics Indonesia). 2020. Percentage of Poor People by Region. Jakarta.
 3

national poverty line, and about one-fifth of the population remains poor or near poor and is highly
vulnerable to shocks (footnote 1). In 2018, 31% of children exhibited signs of stunting.3 Since the
onset of the COVID-19 pandemic, close to 10 million people have been at risk of falling below the
national poverty line, and the poverty incidence is expected to increase to 11.9%–12.8% in 2020.4
The deterioration of the labor market will be felt disproportionately by the most vulnerable,
including informal sector workers, who account for 57% of the labor force.5 Income inequality has
increased since 2009, as the incomes of the top deciles of the income distribution have been
growing faster than those of the lowest deciles (footnote 1). While women make up most students
in tertiary education, 26% of young women were not in employment, education, or training in
2019, compared with 21% of Indonesia’s youth overall, a result of persistent gender inequalities.6
Women’s labor force participation has stagnated, reaching only 55% in February 2020, compared
with 84% for males, and a substantial gender wage gap persists (footnote 6). These factors
contribute to lower levels of well-being for women and their households and prevent the economy
from deploying the full potential of its human capital.

7. Human capital. Indonesia ranked 87th out of 157 countries in 2018 in the Human Capital
Index, placing it among the bottom half of countries globally.7 The availability of basic education
is almost universal in Indonesia, but the quality of education is often poor and varies significantly
by province. Indonesia’s struggling education system contributes to a shortage of high school
graduates with the capacity to become trained as skilled workers. Higher education institutions
perform poorly in global rankings. Enrollment in polytechnic programs is low, particularly among
women, and the quality of these programs is often poor. While employers frequently report
difficulties in finding high-skilled workers, on-the-job training is widely underutilized.

8. Health. Indonesia aspires to ensure good health outcomes at an affordable cost for all.
However, the burden of communicable diseases, coupled with the rising prevalence of
noncommunicable diseases, challenges an overburdened system that is unable to cope with
emerging infectious diseases. The sudden shock of the COVID-19 pandemic has burdened the
fragile health care system, and revealed weaknesses in pandemic preparedness including
mitigation, surveillance, response, and treatment. Ensuring access to essential health services
for all ages remains difficult, especially in rural areas, because of deficiencies in human resources,
health infrastructure, equipment, and supplies, as well as financing gaps. Limitations in
governance and transparency of public health management have become apparent during the
pandemic. As a result, health outcomes remain poor and health inequalities persist. The gaps in
health financing leave many people vulnerable to catastrophic health expenditures that erode
household income and exacerbate poverty. The government's experience in achieving effective
partnerships with the private sector is still nascent and could be better harnessed to increase the
scope, efficiency, and effectiveness of service delivery.

9. Social protection. As part of its poverty reduction strategy, Indonesia has invested
considerably in building a social protection system that prioritizes those living below the national
poverty line. While the government expanded the coverage and scope of its various social
assistance programs when COVID-19 struck, the pandemic exposed the limitations of the overall
system, such as insufficient coverage, poor targeting, inadequate benefits, and a lack of

3 World Bank. 2019. Prevalence of stunting, height for age (% of children under 5), WDI. Washington, DC (accessed
22 July 2020).
4 ADB. 2020. COVID-19 Active Response and Expenditure Support Program: Poverty Impact Assessment. Jakarta.
5
BPS. 2020. Labor Force Situation in Indonesia: February 2020. Jakarta.
6
International Labour Organization. 2020. Share of youth not in employment, education, or training (%). ILOSTAT.
Geneva. (accessed 24 August 2020).
7 World Bank. 2018. https://www.worldbank.org/en/publication/human-capital. Washington, DC.
4

integration across social assistance programs and with social security and social insurance
schemes. The social protection system must become more resilient to exogenous shocks such
as natural and non-natural disasters, and to changing demographic structures. Although
Indonesia has a young population at present, a drop in the fertility rate coupled with a rise in life
expectancy will mean that 10% of the population could be 65 years and older by 2030, up from
the current level of 6%.8 Ensuring sufficient protection for all, regardless of age, sex, or disability,
will be key to reducing poverty and ensuring stability throughout people’s lives.

10. Economic development. Indonesia’s economy recorded sustained economic growth

since the Asian financial crisis of 1997–1998, while sound macroeconomic management helped
weather many headwinds. On the demand side, domestic consumption and investments were the
main drivers of growth; on the supply side, it was the service industry. Given the economic
disruption caused by the COVID-19 pandemic, Indonesia’s economy is expected to contract by
1% in 2020 (compared to 5% growth in 2019).9 High reliance on resource extraction, commodity
exports, and portfolio inflows to finance current account deficits make the economy vulnerable to
shocks and price fluctuations. Conventional sources of growth, such as relying on a large pool of
low-cost labor for competitiveness, may not be reliable in a global context of increased
protectionism, shifting global value chains, and rapid technological change.10 As part of its post-
COVID-19 economic recovery framework, Indonesia may be able to tackle some of these long-
standing structural issues.

11. Competitiveness and private sector development. As Indonesia recovers from the
impact of COVID-19, boosting productivity and competitiveness will be critical to improve the
medium-term economic outlook including for investment and quality jobs. Creating a more
enabling business environment requires addressing regulatory bottlenecks, cumbersome
licensing and permitting processes, and inconsistent application of national regulations across
different local jurisdictions. Improving access to finance, especially for micro, small, and medium-
sized enterprises (MSMEs), will be critical for inclusive growth. Deeper structural reforms to
revitalize a stagnating manufacturing sector and generate a more diverse range of productive
industries will support quality and equitable job creation and enable higher value-added
production of goods and services. Reforming the state-owned enterprise (SOE) portfolio, which
accounts for one-third of infrastructure investments and holds monopolies in a range of sectors,
will enhance SOE performance and private sector development. Recognizing the importance of
boosting Indonesia’s competitiveness and attractiveness as an investment destination,
particularly post-COVID-19, the government has initiated important reforms of the enabling
business environment and structural transformation of the economy, including restructuring of
SOEs. The government has launched a substantial support program for private enterprises,
particularly MSMEs, as part of its COVID-19 economic recovery program.

12. Infrastructure. One of the most critical challenges facing Indonesia is that the quality of
its infrastructure is insufficient to support a modern economy. The mostly fossil-fuel-based
electricity distribution network suffers regular overloading, and unreliable supply affects several
high-density areas. The coverage of piped and safely managed drinking water and sanitation is
low. Poor spatial planning and land management has led to uncontrolled development in
conservation and flood-prone areas, reducing the potential for groundwater recharge and
escalating flood risks to residents, property, and agricultural land. The costs imposed by poor

8
World Bank. 2019. Population ages 65 and above (% of total population), WDI. Washington, DC (accessed 22 July
2020).
9 ADB. 2020. Asian Development Outlook Supplement, June 2020. Manila.
10 ADB. 2020. Innovate Indonesia: Unlocking Growth through Technological Transformation. Manila.
 5

transport infrastructure curb competitiveness, constrain domestic economic activity, and limit
integration into global production chains, while poor energy infrastructure restricts business
investments and productivity. The limited capacity of local governments to provide affordable land,
services, and housing has resulted in the growth of informal settlements with poor access to basic
infrastructure and services. These infrastructure deficits contribute significantly to the
disproportionate burden of unpaid care work and drudgery for women and girls. Despite the recent
increases, infrastructure investment has fallen short of the climate-risk adjusted need of 6% of
GDP.11 The proposed new capital in East Kalimantan province is an opportunity to develop a
state-of-the-art green city, but also poses considerable planning, designing, and financing
challenges. Stepping up green infrastructure investments, including by incorporating G20
principles for quality infrastructure investment, will help stimulate recovery from the economic
impact of the COVID-19 pandemic, and support a green recovery path and broad-based job
creation.12

13. Domestic resource mobilization. Indonesia’s revenue-to-GDP ratio fell from 13.1% in
2015 to just 12.4% in 2019 (footnote 1). The trend is being exacerbated by COVID-19. In 2020
revenues are anticipated to be at least 20% below projections because of the slowdown in
economic activity as well as the tax relief provided as part of COVID-19 economic response
measures (footnote 1). Tax revenues are limited because of the narrow tax base, lower oil and
gas revenues, and poor tax administration capacity. The government’s tax reform agenda
includes a gradual reduction in corporate taxes, while broadening the tax base, simplifying tax
administration, and streamlining and consolidating regional taxes. The government is also
modernizing tax administration by moving to e-filing and e-payment, and to modern compliance
management tools such as risk-based audits. It is implementing measures to combat base
erosion and profit shifting in line with its G20 responsibilities.

14. Climate change, environment, and disasters. Indonesia is the fourth-largest

greenhouse gas emitting country in the world and is itself highly exposed to climate change risks
and natural disasters.13 As an archipelagic country that is home to many large coastal cities in a
seismically active region, Indonesia’s water and food security, the habitability of its settlements,
and the functioning of critical infrastructure are vulnerable to changing rainfall and temperature
patterns. Despite its globally significant terrestrial and marine biodiversity, Indonesia is one of the
major sources of ocean plastic, some of its rivers are among the world’s dirtiest, and deforestation
rates remain intractably high.14 Significant disasters since 1990 have caused an annual average
cost of $1.4 billion, an amount that will be dwarfed by the impact of COVID-19.15 The existing
infrastructure is inadequate to cope with the challenges posed by climate change. Notable
government responses have included a low-carbon development initiative to help meet Paris
Agreement targets; the 2018 disaster risk financing and insurance strategy; and the 2019 launch
of the Environmental Trust Agency as a vehicle for mobilizing finance related to climate change,
the environment, and disasters. The government has also set up the National Plastic Action
Partnership to bring together the private sector and civil society to tackle plastic pollution with
concerted action. Indonesia could also use the COVID-19 recovery to reorient its economy toward
a more strategic low-carbon trajectory while simultaneously addressing underlying vulnerabilities,
and improving the climate and disaster resilience of communities and sectors.

11 ADB. 2017. Meeting Asia’s Infrastructure Needs. Jakarta. According to the 2018 Global Competitiveness Report,
Indonesia ranked 71st of 140 economies on infrastructure, down from 56th of 144 in 2014.
12
G20. 2019. G20 Osaka Summit: Principles for Quality Infrastructure Investment. Osaka.
13
ADB and World Bank. 2020. Climate Risk Profile: Indonesia. Manila and Washington DC.
14 L. Lebreton et al. 2017. River Plastic Emissions to the World’s Ocean. Nature Communications.
15 Republic of Indonesia, Ministry of Finance. 2018. Indonesia Disaster Risk Financing and Insurance Strategy. Jakarta.
6

15. Governance. The government has identified weak governance and institutional capacity,
issues of corruption, and bureaucratic inefficiencies as constraints to inclusive growth. While
Indonesia has substantially improved its public financial management, it needs to strengthen
budget reliability, the management of assets and liabilities, and external scrutiny and auditing.
The government has also launched public procurement reforms and invested in building the
capacity of the national procurement agency. Although Indonesia’s performance on the
Corruption Perceptions Index has improved, corruption concerns remain widespread,
discouraging investments and delaying project and policy implementation; the impact of the
changes to the Corruption Eradication Commission law in 2019 remains to be seen.

16. Local development and decentralization. Vast economic disparities between regions
complicate convergence within Indonesia, compounded by wide differences in the quality of public
service provision across local governments. For instance, Jakarta’s per capita regional GDP is
about 13 times higher than that of East Nusa Tenggara, while 26.5% of the residents of Papua
are below the national poverty line, compared with 9.2% nationwide and 3.4% in Jakarta.16
Decentralization has delegated the provision of most local public services, including education
and health care, to district governments, and the central government transfers funds directly to
more than 74,000 village-level units in Indonesia. Subnational governments now account for 53%
of total government spending, of which 38% is managed by district governments.17 Subnational
governments are constrained by relatively weak capacity and a lack of access to capital markets
for infrastructure projects, which translates into relatively low development outcomes. Efforts to
further strengthen the decentralized provision of public services will likely gain momentum in the
post-COVID-19 economic recovery, including recognition of the need to invest in the digitalization
of public services.

17. Achieving the SDGs. Indonesia’s 2019 voluntary national review of its SDG progress
found three primary hurdles to overcoming gaps in SDG attainment: (i) limited access to public
services and inequality of economic opportunity because of poverty and the remoteness of
locations; (ii) weak capacity of subnational governments to comply with national standards, which
limits the effectiveness of public services; and (iii) limited availability of adequate, up-to-date, and
disaggregated data for development planning.18 The estimated annual gap in SDG financing in
Indonesia is projected to increase from $10 billion–$21 billion in 2020 to $175 billion–$355 billion
in 2030 (footnote 1). In the post-COVID-19 environment, it will be vital to ensure that adequate
resources are mobilized to meet the SDGs, which will be a challenge.

18. Regional cooperation and integration. Indonesia plays an important role in regional
cooperation in Southeast Asia, being one of the founding members of and the largest economy
in the Association of Southeast Asian Nations (ASEAN). Indonesia in 2019 established the
Indonesia Agency for International Development, which will have an initial focus on supporting
Pacific developing countries through South-South and triangular cooperation. Regional efforts to
strengthen connectivity are aligned with Indonesia’s interest in building cross-border agreements,
including a local currency settlement framework, and infrastructure to promote trade and
economic growth, thereby reducing regional inequality in its border areas. The timely conclusion
of the Regional Comprehensive Economic Partnership could help boost regional trade and
recovery from the economic impact of COVID-19.

16 BPS. 2019. Produk Domestik Regional Bruto Per Kapita Atas Dasar Harga Berlaku Menurut Provinsi. Jakarta; and
BPS. 2019. Monthly Report of Socio-Economic Data, July 2019. Jakarta.
17
World Bank. 2017. Indonesia Economic Quarterly: Making Decentralization Deliver. Jakarta.
18 Government of Indonesia, BAPPENAS. 2019. Voluntary National Reviews (VNR): Empowering People and Ensuring

Inclusiveness and Equality. Jakarta.

 7

III. COUNTRY STRATEGY FRAMEWORK

A. Lessons from Previous Strategy

19. To support more inclusive and environmentally sustainable growth, ADB’s CPS for
Indonesia, 2016–2019 focused on infrastructure services, economic governance, and enhanced
human resource development.19 The country assistance program evaluation assessed ADB’s
support for Indonesia during 2005–2018 and found good results in the major sectors of focus.20
Lessons from the evaluation indicate that (i) strong country ownership is important; (ii) strong
partnerships with clients are essential for ensuring the relevance of ADB support; (iii) cooperation
with multiple stakeholders, including SOEs and subnational governments, is vital for delivering
infrastructure projects; (iv) a community-driven approach is a cost-effective way of delivering
infrastructure projects in villages; and (v) coordination and capacity constraints across central and
subnational governments can impact project implementation.

20. The evaluation made two strategic recommendations: (i) focus on boosting Indonesia’s
path to inclusive, environmentally sustainable, and climate-resilient growth; and (ii) strengthen
local government capacity. It also made operational recommendations: (i) tackle project readiness
issues and offer better and more innovative project designs to improve the quality and
implementation of projects; (ii) diversify financing options to ensure that policy reforms supported
by policy-based lending are complemented by other lending modalities; and (iii) improve the
framing of operations with analytical underpinnings and results frameworks to support policy
reforms, capacity building, and institutional strengthening. The lessons and recommendations
informed the framing of the overall goal, the selection of the strategic pathways, and the
implementation plan of the CPS for 2020–2024.

B. National Development Strategy

21. National development agenda. The RPJMN, 2020–2024, which completes the National
Long-Term Development Plan (RPJPN), 2005–2024, establishes the goal of achieving
prosperous, fair, and sustainable development by 2024.21 The government’s policy priorities
include persistent efforts to accelerate the development of human capital, improve infrastructure
and connectivity, simplify regulations and bureaucracy, and promote economic transformation.
To close the infrastructure gap, the government plans to mobilize $450 billion in infrastructure
development under the RPJMN. The RPJMN includes targets that represent a continuation and
acceleration of current progress, rather than a major change in trend. The adverse impact of
COVID-19 means that the topline goals of the RPJMN may be difficult to achieve. The government
has established a taskforce on COVID-19 response and economic recovery, which prioritizes
health care and social protection systems as well as economic support measures.

22. Government strategy to achieve the SDGs. The government instituted the National
SDGs Secretariat at the National Development Planning Agency (BAPPENAS) in 2016, and the
SDGs National Coordination Team overseen by a steering committee chaired by the President in
2017.22 Of 169 SDG targets, 94 were mainstreamed into the RPJMN, 2015–2019, while the

19 ADB. 2016. Country Partnership Strategy: Indonesia, 2016–2019: Towards a Higher, More Inclusive and Sustainable
Growth Path. Manila.
20 Independent Evaluation Department. 2019. Country Assistance Program Evaluation: Indonesia, 2005–2018. Manila:

ADB.
21
Government of Indonesia. 2020. National Medium-Term Development Plan (RPJMN) 2020-2024. Jakarta; and
Government of Indonesia. 2005. National Long-Term Development Plan (RPJPN), 2005–2024. Jakarta.
22 United Nations. 2015. Transforming Our World: The 2030 Agenda for Sustainable Development. New York.
8

RPJMN, 2020–2024 sets more targets and provides greater alignment with the SDGs. Indonesia
presented its voluntary national reviews on SDG progress in 2017 and 2019. Mainstreaming
SDGs nationally via the RPJMN will guide the formulation of regional medium-term development
plans. In addition, several SDG-specific plans (e.g., implementation of the SDG road map for
2019–2030; SDG national action plan, 2020–2024; and SDG regional action plans, 2020–2024)
contain programs and activities to support the achievement of the SDGs.

C. Role of Development Partners

23. The government leads the coordination of international assistance, and development
partners coordinate closely with each other at various levels, e.g., regular heads of agency
meetings; (sub)sector coordination groups; regular international development bank group
meetings; and bilateral coordination, including cofinancing. ADB and the World Bank are the
largest multilateral institutions providing development financing and knowledge support. In 2018,
net official development flows—official development assistance and other official flows—totaled
$4.7 billion, or 3% of central government expenditure.23 Development partners have reprioritized
their programs to support the COVID-19 response and recovery measures.

D. ADB’s Strategic Objectives and Operational Priorities

Country Partnership Strategy Framework

ADB = Asian Development Bank, COVID-19 = coronavirus disease, OP = operational priority.

Source: Asian Development Bank.

23 Organisation for Economic Co-operation and Development. 2019. Total Official Flows by Country and Region. Paris.
 9

24. The strategy. The CPS aims to support inclusive, competitive, and sustainable
development in Indonesia. It is geared toward helping Indonesia emerge stronger from the
COVID-19 pandemic by focusing on three strategic pathways: (i) improving well-being, (ii)
accelerating economic recovery, and (iii) strengthening resilience. The strategy will be supported
by seven crosscutting priorities. It is fully aligned with Indonesia’s national priorities, the SDGs,
and ADB’s corporate strategy.24

1. Strategic Pathway: Improving Well-Being

25. ADB will help Indonesia overcome the adverse effects of COVID-19 on health and
livelihoods by improving the well-being of its people, while remaining mindful of the different
impacts on the young and the elderly, and particularly of women and vulnerable groups, including
indigenous people.25 It will prioritize efforts to (i) strengthen the health care system, (ii) expand
social protection coverage, (iii) improve education quality, and (iv) develop workforce skills.

26. Health care system. ADB will support reforms and investments promoting the
government’s goal of universal health coverage and the promotion of knowledge transfer between
developing member countries. It will help control the COVID-19 outbreak by providing medical
equipment and supplies, and liaising with the government on how to enhance testing capacity as
well as access to vaccines. It will provide knowledge support on strengthening health security and
governance, including areas related to equitable human resource development, as well as public
sector management. ADB will also assist the development of sustainable health financing to
increase the affordability and efficiency of the health insurance system. It will support investments
in medical teaching institutes to boost their capacity for developing high-quality health personnel.
Building on previous nonsovereign investment in the health sector, ADB will seek opportunities
for promoting private sector investments and public–private partnerships (PPPs) to improve
health care services.

27. Social protection. ADB will support the government’s efforts to ensure that beneficiaries
can access a full range of social protection programs, including the transition to social insurance.
It will help expand the social protection system to mitigate the impact of COVID-19 and other
disasters. It will support measures to expand and strengthen conditional cash and noncash
transfer programs, including building the capacity of implementers. ADB will also support
investments in developing the capacity of implementing agencies and improving the social registry
systems that form the backbone of social protection programs. It will promote greater use of social
insurance schemes to help ensure adequate benefits for different life cycle risks. It will provide
knowledge support for developing long-term care systems and services for the elderly, human
resources, and PPPs for more effective service delivery. ADB’s social protection interventions will
directly and indirectly support health, education, and social services.

28. Educational quality. ADB will support knowledge partnerships, policy reforms, and
project investments that help to: (i) broaden access to quality tertiary education through
nontraditional programs, such as partnerships with foreign universities, and international and
domestic online platforms; (ii) improve the quality of education by using affordable and innovative
education technology solutions to enrich teaching and learning; (iii) build a critical mass of
universities with greater capacity for carrying out research based on advanced technologies and

24
ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific.
Manila.
25 This strategic pathway is aligned with ADB’s operational priority of addressing remaining poverty and reducing

inequalities (OP 1).

10

commercializing that research, nurturing innovation and improving learning outcomes, and
developing entrepreneurship; (iv) enhance education services by promoting PPPs and private
sector investments; and (v) strengthen quality assurance and accreditation. ADB will explore
opportunities to help educational institutions adapt to changing conditions, build resilience, and
improve preparedness for disruptions in teaching and learning as well as workforce readiness.

29. Workforce skills. Given the disruptions to the labor market from technological changes
and COVID-19, ADB will help develop a tech-savvy workforce and improve access to re-skilling
opportunities. ADB is engaged in knowledge work and policy dialogue on the impact of these
trends on jobs, skills mapping, and labor market diagnostics. It will provide technical support to
help pilot technology interventions focused on skills development in technical and vocational
education and training systems. ADB will help to: (i) strengthen technical and vocational education
and training by exploring potential synergies with technical high schools, apprenticeships, and
links with local employers and other institutions; (ii) upgrade the organizational ability of MSMEs
to increase workers’ skills; and (iii) develop programs to improve the school-to-work transition and
pre-employment services.

2. Strategic Pathway: Accelerating Economic Recovery

30. To support accelerated economic recovery, ADB’s assistance will prioritize (i) economic
policy and structural reforms; (ii) domestic resource mobilization; (iii) financial market deepening
and inclusion; and (iv) development of high-quality infrastructure (energy, transport, and livable
cities).26 ADB will seek to catalyze private sector investments and support transaction advisory
services for infrastructure projects.

31. Economic policy and structural reforms. Building on analytical work, technical advice,
and policy dialogue, ADB will support the government’s strategy for the economic recovery from
COVID-19, related structural reforms, and measures for building economic resilience and
inclusiveness. Policy reform support will involve a well-sequenced and programmatic approach
tailored to the government's priority policy areas: (i) removing barriers to investment and helping
reduce the cost of doing business; (ii) revitalizing manufacturing in Indonesia to increase
productivity; and (iii) catalyzing inclusive local economic development. ADB will support the
government’s agenda to reform SOEs and help strengthen public financial management to
sustain critical spending in infrastructure and social sectors. It will monitor macroeconomic
developments and build capacity for economic forecasting and risk management. It will remain
responsive to unforeseen challenges that could undermine Indonesia’s macroeconomic stability.

32. Domestic resource mobilization. ADB will provide analytical support and technical
assistance (TA) and explore opportunities for programmatic support of the government’s revenue
reform agenda, to help address the fall in public revenue because of the COVID-19 economic
slowdown. At the same time, lessons learned from past crises need to be taken into consideration
in determining the timing for shifting gears from fiscal stimulus toward fiscal consolidation. ADB
will explore opportunities to support the government in critical areas such as (i) strengthening
taxpayer services and compliance management by streamlining processes and pursuing the
digitalization of registration, filing, and payments; (ii) promoting a consistent and non-distortionary
approach to local revenue mobilization by strengthening productive tax bases and rationalizing
fragmented and administratively costly revenue sources; (iii) combating base erosion and profit
shifting by developing dispute resolution mechanisms and supporting mutual agreement

26 This strategic pathway is aligned with ADB’s operational priorities of making cities more livable (OP 4) and of
strengthening governance and institutional capacity (OP 6).
 11

procedures; and (iv) modernizing local tax administration. ADB will also assist selected
subnational governments in issuing municipal bonds to help raise capital for infrastructure
investments.

33. Financial market deepening and inclusions. In light of the adverse impact of COVID-
19 on MSMEs and marginalized groups, including women and youths, ADB will provide
programmatic support to the government’s plans to expand financial inclusion by helping to: (i)
develop suitable tools and infrastructure for financial inclusion; (ii) improve access to finance,
including by supporting the implementation of the National Women’s Financial Inclusion Strategy;
and (iii) establish supervision and consumer protection measures for responsible financial
inclusion, while incorporating financial technology across all reform areas. ADB will explore
opportunities to provide knowledge and programmatic support for the expansion of Islamic
finance. It will also help set up a green financing facility and mobilize blended finance for
infrastructure projects related to the achievement of the SDGs. With the issuance of long-dated
rupiah-denominated bonds, ADB will help meet demand for local currency financing.

34. Quality infrastructure: energy, transport, and livable cities. ADB will support quality
infrastructure investments in the energy and transport sectors, and the development of livable
cities through a combination of knowledge, policy, and financial support. In energy, ADB support
will center on policy reforms toward stronger energy sector governance, clean energy and energy
efficiency, and private sector participation, while the investment focus will be on sustainable power
generation, power transmission systems, and electricity grids. In transport, ADB will explore the
development of railway systems, ports, and urban transport in selected cities. To promote livable
cities, ADB will continue to work on enhancing access to clean sanitation and water supply, waste
management, and reducing informal settlements. It will adopt an integrated approach to urban
development through cross-sector coordination, and will seek to mobilize innovative financing
solutions, promote PPPs, and help catalyze private sector investments.

3. Strategic Pathway: Strengthening Resilience

35. To safeguard against setbacks to sustained, intergenerational prosperity, ADB will

concentrate on strengthening Indonesia’s resilience to natural disasters, the outbreak of diseases,
and climate change.27 Its assistance will prioritize (i) climate change mitigation and adaptation, (ii)
environmental sustainability and green recovery, (iii) disaster risk management and finance, and
(iv) water and food security. ADB will continue to play a major role in financing climate-related
private sector projects in Indonesia, including support for greater use of cutting-edge clean,
renewable, and efficient energy technologies.

36. Climate change mitigation and adaptation. ADB will embed climate change mitigation
and adaptation measures in its infrastructure investments and support Indonesia’s nationally
determined contribution goal of 23% of energy supply coming from renewable sources by 2025.
ADB will help Indonesia realize its geothermal potential, the large-scale use of its considerable
solar photovoltaic and wind resources, and support gas-fired power generation infrastructure to
provide backup capacity for intermittent use of renewable energy and the replacement of diesel
in Indonesia. It will promote private sector investment in low-carbon initiatives, including
technologies that enable the efficient use of renewable energy, and provide knowledge and
capacity support to the newly established Environmental Trust Agency. It will help mobilize

27
This strategic pathway is aligned with ADB’s operational priorities of tackling climate change, building climate and
disaster resilience, and enhancing environmental sustainability (OP 3) and of promoting rural development and food
security (OP 5).
12

domestic and international climate finance and establish market-based carbon mechanisms. It
will explore partnership opportunities to help Indonesia address land use, land use change, and
forestry emissions. ADB’s climate adaptation support will include enhancing resilience-building
measures in urban and rural areas, promotion of climate-smart livelihoods, adaptive social
protection, and improved forecasting systems to strengthen the resilience and capacity of women
and men in vulnerable communities.

37. Environmental sustainability and green recovery. ADB will provide knowledge support
and help catalyze investments for projects that foster environmental sustainability and a green
recovery from COVID-19. As part of its Action Plan for Healthy Oceans and Sustainable Blue
Economies, ADB will seek to mobilize public and private sector investments to help improve
ocean health. It will explore innovative approaches such as coral reef insurance and blue bonds,
marine aquaculture, artificial reefs, renewable energy, and ecotourism for ecosystem services. In
line with a green, livable cities approach, ADB will promote PPPs for waste management and
waste-to-energy development; mobilize investments for low-emission transport schemes; and
support the National Plastic Action Partnership, nature-based solutions, and circular economy
practices.28 It will provide knowledge and TA to help formulate policies and plans aimed at
triggering an environmentally sustainable COVID-19 green recovery path.

38. Disaster risk management and finance. ADB will promote disaster risk reduction by
integrating disaster risk considerations into project designs, reinforcing resilience-building
measures, and improving early warning systems. It will continue to take an active role in
Indonesia’s COVID-19 response and recovery, support efforts to strengthen Indonesia’s
preparedness to shocks. It will explore disaster risk financing options in line with the government’s
disaster risk financing and insurance strategy, through instruments such as (i) a contingent
disaster financing facility that will improve the management of residual risk and accelerate post-
disaster recovery and reconstruction, and (ii) a subnational disaster risk insurance pool
(mutualized insurance facility) that will strengthen the fiscal resilience of subnational governments
to disasters. ADB will support local responsiveness to disasters by building the capacity of
vulnerable and marginalized communities and encouraging their participation in decision-making
related to disaster risk management and climate adaptation. ADB will support flood risk
management and building-back-better approaches after disaster events.

39. Water and food security. ADB will seek to introduce innovations in agriculture and
natural resource management covering flood resilience, integrated water supply development,
improvement of piped water supply and of the performance of water supply operators, irrigated
agriculture, better dryland management, and support for the aquaculture industry. Where feasible,
ADB will explore opportunities for PPPs and promote private sector investment in agribusinesses.

4. Crosscutting Priorities

40. Support for the COVID-19 recovery is the overarching CPS theme, under which ADB will
incorporate the following crosscutting priorities in its operations in the country.

41. Leverage private investments. ADB will bring to bear its full range of sovereign and
nonsovereign modalities for development finance along with its technical expertise and know-how
to help catalyze private investments. It will promote greater use of PPPs, help prepare business

28 ADB is a member of the steering board of Indonesia’s National Plastic Action Partnership, and ADB cochairs with
the Ministry of Finance the task force on financing.
 13

cases to confirm the bankability of PPP projects, and create opportunities for private sector
participation and investments in infrastructure.

42. Advance gender equity and social inclusion. ADB will work with stakeholders,
including the private sector, toward improved gender outcomes. It will use TA to incorporate
transformative gender actions into the design of programs and projects. Its programs will
specifically target the empowerment of women and girls. ADB will strengthen gender expertise in
the resident mission to support CPS implementation while ensuring that project teams have
adequate gender expertise to enable effective monitoring and reporting on gender action plans.
ADB will support the government’s programs to help the poor and vulnerable recover from
COVID-19.

43. Strengthen governance and institutions. ADB will help improve the governance and
institutional capacity of executing and implementing agencies through TA and programs that
support public financial management and procurement reforms. It will also assist efforts to
strengthen the governance and financial resilience of SOEs. ADB programs will help build the
capacity of local governments for raising capital (e.g., by issuing municipal bonds) and enabling
private investments (e.g., through credit guarantees and PPPs) to close the infrastructure gap
and improve the quality of infrastructure.

44. Promote digitalization and technological transformation. ADB will support

digitalization and technological transformation by introducing big data analytics, financial
technologies, and frontier technologies for smart infrastructure planning and monitoring. ADB will
use new technologies in its operations, such as satellite technology for flood mapping, urban
development, and COVID-19 response measures; web-based asset management information
systems for water resources infrastructure; smart grids and meters; and active remote sensing
systems (LIDAR) to improve survey and planning processes for the operation and maintenance
of assets. ADB will partner with the European Space Agency to introduce innovations in its water
security and food security program.

45. Enhance local and regional economic development. ADB will support sustainable rural
transformation by promoting the economic empowerment of villages, stimulating village
entrepreneurship, youth employment and job creation, and strengthening local government
planning. Particular attention will be given to regions that have been left behind in terms of
economic development. ADB will help strengthen the internal controls and audit capacity of local
governments as well as help raise capital and open up opportunities for private investments. ADB
will promote community-led disaster resilience building.

46. Strengthen regional cooperation and integration. ADB will promote regional
cooperation and integration by assisting Indonesia (and other developing member countries) in
sharing knowledge on public health responses to the COVID-19 pandemic and the economic
recovery from it, improving cross-border infrastructure to increase trade flows, boosting the
economic development of border regions, and deepening regional agriculture value chains. ADB
will support Indonesia in providing development assistance to other developing countries,
including Pacific countries, through triangular cooperation.

47. Support for attainment of the SDGs. ADB will support Indonesia’s achievement of the
SDGs by aligning the CPS with the RPJMN, 2020–2024, which incorporates the SDGs. It will
provide knowledge, TA, and innovative financing solutions to help the government mobilize
financing and localize SDG targets, and help assess to what extent the COVID-19 pandemic is
affecting the achievement of the SDGs.
14

E. Priorities for Knowledge Support

48. ADB’s knowledge support will focus on the needs of an upper middle-income economy.
This will involve developing knowledge under each strategic pathway under the CPS, both as
stand-alone knowledge products and as elements incorporated into projects and government
plans. Following the One ADB approach, the country knowledge plan will promote cross-
fertilization of knowledge between sovereign and nonsovereign operations, and across sectors
and themes. An interdepartmental Indonesia Knowledge Advisory Group, which also includes the
ADB Institute, coordinates country knowledge work, and the country director of ADB’s resident
mission in Indonesia is the knowledge custodian. The detailed country knowledge plan is in
Appendix 2.

IV. STRATEGY IMPLEMENTATION

A. Indicative Resource Parameters

49. Indonesia, a group C developing member country, is eligible for regular ordinary capital
resources lending.29 The indicative resources available during 2020–2023 for sovereign lending
operations total $10.7 billion.30 ADB will endeavor to leverage its resources through cofinancing
and innovative knowledge solutions and to supplement the national program with regional
initiatives (Box 2).

B. Implementation Priorities

50. Selectivity. ADB’s engagement

Box 2:
in Indonesia will continue to focus on
Salient Features of the
areas where it can add the most value. Country Partnership Strategy
As Indonesia has the capacity and
resources to overcome more traditional Innovative features in the Country Partnership Strategy
development challenges, ADB include:
operations in each sector will seek to (i) Presenting a flexible and agile framework to
help the government tackle complex effectively respond to Indonesia’s rapidly
development issues through a evolving priorities in the coronavirus disease
combination of knowledge, technology, context
and innovative financing. ADB will (ii) Prioritizing climate and environment
support the development of (iii) Emphasizing innovation and technology to
offer cutting-edge solutions
demonstration projects as well as the (iv) Introducing innovative finance and knowledge
sharing of experiences and best solutions on national and local levels
practices. With the notable exception of (v) Advancing gender equality
public health, ADB has had significant (vi) Supporting Indonesia’s new aid agency in
engagement in Indonesia in the sectors promoting emerging areas such as ocean
selected for the proposed CPS, and health
projects in the pipeline have been under (vii) Promoting an integrated, One ADB approach
preparation for some time. in delivering knowledge and finance
____________________
Source: Asian Development Bank.

29
ADB. 2008. Review of the 1998 Graduation Policy of the Asian Development Bank. Manila; and ADB. 1998. A
Graduation Policy for ADB’s DMCs. Manila (Corrigendum 1).
30 In addition, in 2020 ADB provided $1.5 billion to Indonesia under the COVID-19 Pandemic Response Option.

Resources for commitment in 2024 are to be determined.

 15

51. Financing modalities. The medium-term impact of COVID-19 is likely to increase

demand for financial support from development partners. ADB will be responsive to the
government’s evolving needs and priorities, while ensuring that the program comprises a
diversified and sequenced suite of modalities, so that policy reforms—backed by TA, knowledge
support, and policy-based and results-based lending—are reinforced with investments to drive
targeted development outcomes. ADB will use the project readiness financing instrument to
develop the project pipeline, build technical capacity, and strengthen institutions. It will promote
innovative financing instruments, as well as the use of local currency financing of programs and
projects, with options for loan conversion.

52. Project readiness and portfolio implementation. In view of a growing portfolio of ADB
projects under implementation and to enhance delivery, ADB and the government have
developed an action plan to strengthen portfolio performance over the CPS period. ADB will utilize
project development facilities and TA efforts to augment project support resources in
procurement, safeguards, financial management, and disbursement during project processing.
To mitigate disruptions to its operations in the context of COVID-19 protocols, ADB will increase
the use of national consultants in the near term and apply new technologies (e.g., satellite
technology) during project design and monitoring, and closely engage with project counterparts
to ensure the timely processing and implementation of projects.

53. Partnerships. ADB will advance partnerships, building on its unique role as a multilateral
convener. It will collaborate closely with other development partners and the private sector and
will seek opportunities to catalyze official and commercial cofinancing, as well as philanthropic
sources. It will deepen engagement with civil society, including through the newly established Civil
Society Organization Advisory Group for ADB Indonesia. It will strengthen links with academia
and think tanks to augment the relevance and quality of knowledge work.

54. Instituting the One ADB approach. ADB operations in Indonesia will reinforce an
integrated, One ADB approach that encourages collaboration between its sovereign and
nonsovereign operations, synergy in knowledge activities between operations and non-operations
departments, and integrated solutions through collaboration across sector and thematic groups.31
In terms of sovereign and nonsovereign collaboration, ADB’s Southeast Asia Department
(SERD), Private Sector Operations Department, and Office of Public–Private Partnership will
further advance their collaboration and explore joint opportunities.32 Engagement and dialogue
with government agencies and private sector clients on prospective project and program
opportunities will cover ADB’s full suite of available financing and advisory assistance options, as
well as sector-focused One ADB value propositions. ADB will further boost synergies between
sovereign and nonsovereign operations through early involvement at the concept paper stage,
and mutual inclusion of project team members as appropriate. Likewise, SERD will collaborate
closely with the Strategy, Policy, and Partnerships Department; Economic Research and Regional
Cooperation Department; Sustainable Development and Climate Change Department; and the
Treasury Department, among others. ADB will deepen its collaboration with the ADB Institute on
knowledge work in Indonesia.

55. Strengthening country presence. To support an expanding and increasingly complex

and knowledge-heavy program, ADB will continue to strengthen its presence in Indonesia. A

31 The One ADB approach encourages collaboration between ADB’s sovereign and nonsovereign operations, synergy
in knowledge activities between operational and central departments, and integrated solutions through collaboration
across sector and thematic groups.
32 ADB. 2019. Operational Plan for Private Sector Operations, 2019–2024. Manila. One ADB in Indonesia: Leveraging

ADB’s Sovereign and Nonsovereign Operations (accessible from the list of linked documents in Appendix 3).
16

strong country presence—including staff outposted from sector divisions of SERD; the Private
Sector Operations Department; and the Procurement, Portfolio, and Financial Management
Department; supported by central knowledge departments and offices—will be critical in ensuring
greater effectiveness of ADB operations in Indonesia.

C. Monitoring of Results

56. ADB will monitor the implementation of the CPS using the CPS results framework
(Appendix 1). Where needed, ADB will strengthen the monitoring and evaluation capacity of
executing agencies. The CPS results framework indicators are aligned with the RPJMN, 2020–
2024 and the ADB corporate results framework indicators, and will be regularly tracked and
reported on. ADB will undertake a midterm review of the CPS implementation and update the
CPS results framework if a revision of the government’s development targets requires it.

D. Risks

57. COVID-19 and government policy. Indonesia’s outlook will be impacted by COVID-19.
A delay in recovery from the pandemic will adversely impact public health and economic
performance, and may jeopardize Indonesia’s ability to achieve its RPJMN, 2020–2024 targets.
In the context of increased economic and external uncertainties, there is a risk of changes in
government policies and approaches. The CPS aims to support the government through an
enhanced package of financial and knowledge support, dialogue, and partnership. ADB will help
the government in managing pandemic and recession curves and devising mitigation approaches.
ADB will step up its knowledge work and reform dialogue including regional cooperation. The CPS
includes a degree of strategic flexibility taking into account the rapidly evolving development
context and priorities.

58. Climate and disaster risk. Indonesia is prone to natural hazards, with potential adverse
impacts on livelihoods, economic performance, and infrastructure damage. This may also affect
the sustainability of ADB-financed projects. The CPS prioritizes climate risk and resilience. ADB
stands ready to support the government in addressing the impact of natural disasters through
emergency and other support measures. ADB’s projects will be designed to be climate proof and
ADB will work with the government and communities to strengthen capacity in disaster risk
management and financing.

59. Reform capture. In a large and diverse economy with a complex geography like
Indonesia, there are risks of reforms and large-scale institutional or regulatory changes being
captured and held back by vested interests. Successive Indonesian administrations since the
Asian financial crisis have put in place measures to promote wider dissemination of information
around reform packages and give voice to those likely to be affected. Given the complex political
economy of reforms, ADB will continue to work closely with governments at national and local
levels, civil society, the private sector, the media, and development partners in supporting
forward-looking measures.

60. Coordination and implementation. Coordination issues between government ministries

and between central and subnational government levels, combined with capacity gaps and
accentuated by the impact of COVID-19, may affect implementation of a growing portfolio of
investment projects. ADB and the government have reinforced measures to strengthen project
preparation and implementation, taking into account the need to make adjustments under COVID-
19 protocols.
 Appendix 1 17

COUNTRY PARTNERSHIP STRATEGY RESULTS FRAMEWORK

Country Development Impact Indicators with which the CPS is Aligneda

1. Gross domestic product growth rate increased to 6.0% per year by 2024 (2015–2019 baseline average: 5.0%)
2. Human development index score increased to 75.54 by 2024 (2018 baseline: 71.39)
3. Investment increased to 6.6%–7.0% by 2024 (2015–2019 baseline average: 5.4%)
4. Improvement in Indonesia’s Environmental Quality Index to 69.7 and reduction in GHG emissions by 27.3% by
2024 (2018 baseline: Environmental Quality Index of 65.1 and reduction in GHG emissions by 22.6%)
CPS Strategic Key Outcomes that CPS
Objectives Priority Areas ADB Contributes to Outcome Indicators Resources
1. Improving Health care Sustainable provision Percentage of citizens with access Ongoing
well-being of essential health to affordable health care increased portfolio:
services, including to 98% by 2024 (2019 baseline: As of 31
prevention, detection, 84%) December
and treatment for 2019
COVID-19 and other
diseases Sovereign
loan projects
Social Expanded program of Poor and vulnerable households Number: 21
protection social assistance to receiving government social Amount: $3.18
poor and vulnerable assistance increased to 80.0% by billion
households 2024, disaggregated by sex
(2018 baseline: 65.2%) Nonsovereign
projects
Educational Educational Gross tertiary enrollment increased Number: 8
quality institutions in regional to 37.6% by 2024, disaggregated by Amount: $1.20
areas better able to sex (2018 baseline: 30.2%) billion
provide advanced
skills Percentage of higher education Planned
graduates securing a job within one operations
year of completion of study and
increased to 66.7% by 2024, contribution
disaggregated by sex (3-year
(2019 baseline: 64.3%) pipeline as
per latest
Workforce skills Improved skills and Graduates of competency-certified COBP):
competencies for vocational education and training
women and men increased to 2.8 million by 2024, Sovereign
disaggregated by sex lending
(2018 baseline: 780,000) operations of
2. Accelerating Economic Increased economic Doing business score and ranking $9.1 billion for
economic policy and competitiveness and improved by 2024 (2020 baseline: 2021–2023
recovery structural reduced barriers to overall score of 69.6, ranked 73rd
reforms doing business out of 190 countries in 2020 report)

Domestic Increased revenue At least one municipal bond issued

resource for development by 2024 (2019 baseline: 0)
mobilization financing

Financial Increased access to Access to formal bank accounts by

market financial services 75.0% of the overall adult population
deepening and reached (2017 baseline: 48.9%)
inclusion

Quality Increased access to Household electrification rate of

infrastructure energy 99.5% reached by 2024
(2019 baseline: 98.8%)

Transmission lines increased to

107,653 ckm by 2024 (2018
baseline: 59,322 ckm)
18 Appendix 1

CPS Strategic Key Outcomes that CPS

Objectives Priority Areas ADB Contributes to Outcome Indicators Resources
Low-voltage distribution lines
increased to 696,386 ckm by 2024
(2018 baseline: 565,194 ckm);
medium-voltage distribution lines
increased to 500,046 ckm by 2024
(2018 baseline: 391,725 ckm)

Improved transport Construction completed on three

infrastructure ports in Sulawesi with ADB support
by 2024 (2019 baseline: 0)

Feasibility study and detailed design

completed for 200 km of roads in
Kalimantan and 20 km of mass
rapid transit in Jakarta by 2024
(2019 baseline: 0)

Increased progress 70,270 households in Jambi,

toward livable cities Makassar, and Pekanbaru
connected to central sewerage
system by 2024 (2019 baseline: 0)

Additional 100,000 urban

households connected to clean
water supply by 2024
(2019 baseline: 14,417,549)
3. Climate change Reduced GHG Share of renewable energy in the
Strengthening mitigation and emissions national energy mix of 20% reached
resilience adaptation by 2024 (2018 baseline: 15.1%)

Environmental Increased adoption of At least one integrated sanitation

sustainability green solutions system adopting green, nature-
and green based solutions by 2024
recovery (2019 baseline: 0)

Disaster risk Increased resilience Investment in disaster risk

management to disasters triggered management in the state budget
and finance by natural hazards increased to 1.00% of the state
budget (2019 baseline: 0.04% of the
state budget)

Increased response National roadmap on COVID-19

to pandemics vaccine development prepared
(2020 baseline: COVID-19 vaccine
development roadmap does not
exist)

Water and food Increased water Additional 10,000 hectares of land

security security and with improved water management
resilience (flood and by 2024 (2019 baseline: 0)
water supply) and
increased food Additional 60,000 hectares of land
production optimized for agriculture production
by 2024 (2019 baseline: 0)
ADB = Asian Development Bank, ckm = circuit-kilometer, COBP = country operations business plan, COVID-19 =
coronavirus disease, CPS = country partnership strategy, GHG = greenhouse gas, km = kilometer.
a Government of Indonesia. 2020. National Medium-Term Development Plan (RPJMN), 2020–2024. Jakarta. The

RPJMN target is in line with Indonesia’s commitment to reduce GHG emissions by 29% (unconditional target) by
2030 under the Paris Agreement against a business-as-usual scenario.
Source: Asian Development Bank.
 Appendix 2 19

COUNTRY KNOWLEDGE PLAN

A. Knowledge Needs

1. Indonesia, in its National Medium-Term Development Plan (RPJMN), 2020–2024,

establishes the goal of achieving prosperous, fair, and sustainable development by 2024.1 To
prepare this strategy document, the Asian Development Bank (ADB) provided high-quality,
demand-driven background papers in areas such as revitalization of the manufacturing industry,
food and water security, energy sector development, skills and higher education, technological
transformation, and development funding strategies. In full alignment with the RPJMN, the country
partnership strategy (CPS), 2020–2024 focuses on (i) improving well-being, (ii) accelerating
economic recovery, and (iii) strengthening resilience. Indonesia has identified knowledge needs
in these areas, including transformative strategies for recovery from the adverse impact of the
coronavirus disease (COVID-19) pandemic and building resilience to exogenous shocks.

2. Knowledge needs for improving well-being. Indonesia needs to move closer to global
best practices in health care, social protection, education, and skills for a more productive and
competitive workforce. As identified in the recent country assistance program evaluation (CAPE),2
this is an area where ADB engagement is particularly needed. The quality of education and health
in Indonesia continues to lag, and international assessments frequently grade the country’s
education and health outcomes as poor. Innovative knowledge solutions are needed for skilling,
reskilling, and upskilling, as well as for improving social safety nets and public health.

3. Knowledge needs for accelerating economic recovery. The government has

prioritized structural reforms to promote the economic transformation to higher value-added
manufacturing and services. In the development of this agenda, ADB provided knowledge
support, particularly on manufacturing and technology, and programmatic support for reforms to
increase competitiveness. Macro analysis to inform the government’s medium-term policy
development is also needed, as is a focused thematic analysis of the government’s policy priority
topics. Routine economic surveillance is required to ensure sound macroeconomic management
and to find timely responses to trends that may erode development gains and the investment
climate.

4. Knowledge needs for strengthening resilience. The RPJMN highlights how the current
focus on natural resource extraction makes it difficult to sustain economic and social progress,
especially given the ongoing environmental depletion and the links to unsustainable forest
conversion practices. Solutions to disease outbreak, antimicrobial resistance, pollution,
environmental degradation, natural hazards, and climate change require strong knowledge
operations—particularly given escalating climate and environmental costs and commitments to
the Sustainable Development Goals. Efforts are needed to build awareness of these
environmental problems and improve the capacity of stakeholders to solve them.

5. Crosscutting governance knowledge needs. Strengthening Indonesia’s governance

capacity is a priority, given the knowledge, skills, and information system gaps in national and
subnational policy frameworks, project cycle management, and technological readiness. The
CAPE highlighted that low capacity and a lack of project implementation ability hindered the
effectiveness of infrastructure development. Incorporating knowledge solutions and capacity

1
Government of Indonesia. 2020. National Medium-Term Development Plan (RPJMN), 2020–2024. Jakarta.
2 Independent Evaluation Department. 2019. Country Assistance Program Evaluation: Indonesia, 2005–2018. Manila:
ADB.
20 Appendix 2

building for implementing partners into projects will be critical for ensuring successful and timely
completion. Project preparation, capacity building, and knowledge generation support have been
an integral part of previous country programs and will continue to be a focus of the CPS for 2020–
2024. Priority will be given to monitoring and evaluation, including for optimizing fiscal multipliers.

B. Scope of ADB’s Planned Knowledge Operations

6. ADB’s approach to knowledge operations in Indonesia seeks to inform its strategy and is
implemented through policy dialogue, analysis and monitoring, and knowledge products and
solutions (Table A2.1). In line with Strategy 2030 and the RPJMN, ADB will strengthen its
knowledge operations to progress national development priorities, foster regional cooperation,
and tackle challenges such as COVID-19.3 Knowledge operations will remain client-driven and
responsive to needs for policy or programmatic innovation and key reform initiatives, with all ADB
projects and products to incorporate knowledge components.

Table A2.1: Mapping of ADB’s Knowledge Operations in Indonesia

ADB = Asian Development Bank, ADO = Asian Development Outlook, ASEAN = Association of Southeast Asian
Nations, BIMP-EAGA = Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area, CAPE =

3 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific.
Manila.
 Appendix 2 21

country assistance program evaluation, CARES = COVID-19 Active Response and Expenditure Support Program, CGE
= computable general equilibrium, CIN = Country Information Note, CKP = Country Knowledge Plan, COBP = country
operations business plan, COVID-19 = coronavirus disease, CPM = Country Programming Mission, CPS = Country
Partnership Strategy, DMCs = Developing Member Countries, ERCD = Economic Research and Regional Cooperation
Department, FAQs = frequently asked questions, IMT-GT = Indonesia-Malaysia-Thailand Growth Triangle, ISGA =
Inclusive and Sustainable Growth Assessment, ITD = Information Technology Department, MOU = Memorandum of
Understanding, OGC = Office of the General Counsel, PACER = Policy Actions for COVID-19 Economic Recovery,
PBL = Policy Based Lending, PCR = Program Completion Report, PPP = Public Private Partnership, PSOD = Private
Sector Operations Department, Q&As = questions and answers, SDCC = Sustainable Development and Climate
Change Department, SDGs = Sustainable Development Goals, SERD = Southeast Asia Regional Department, SPD =
Strategy and Policy Department, TCR= Technical Assistance Completion Report, VPO2 = Vice-President (Operations
2).
Source: Asian Development Bank.

7. Integration of knowledge and programming for greater operational value. Knowledge

operations will provide solutions, unlock productive potential, and enhance institutional capacities
and partnerships (Table A2.2). Strategic issues will be investigated to support the government in
formulating and future-proofing its medium-term development strategies, policies, and programs.
Evidence-based policy reform and program development through just-in-time diagnostics will be
promoted. Knowledge operations will be provided to address specific central and subnational
portfolio challenges and translated into actionable products and services. Support will be provided
to pilot new and innovative programs, technologies, and business processes that provide smart
solutions. ADB will continue to support capacity development for policy analysis and project
implementation, as well as routine economic monitoring and surveillance, to ensure that country
programming solutions respond to emerging needs. All programming and knowledge support will
leverage ADB’s sovereign and nonsovereign operations to deliver more innovative knowledge
and financing solutions. Following the One ADB approach, cross-fertilization of knowledge
between sovereign and nonsovereign operations and across sectors and themes will be used to
inform sovereign lending, and vice versa. This will allow for the use of technical, crosscutting, and
innovation resources for more innovative knowledge solutions across operational priority areas.

Table A2.2: Country Knowledge Support Framework

ADB = Asian Development Bank, COVID-19 = coronavirus disease.

Source: Asian Development Bank.
22 Appendix 2

8. Effective knowledge capture for enhanced dissemination and management. As part

of efforts to step up on knowledge, ADB will produce and disseminate knowledge through (i)
traditional channels such as project documentation, blogs, opinion articles, working papers, policy
forums, and press conferences; and (ii) nontraditional channels such as online platforms,
webinars, virtual meetings, and interactive workspaces. Accessibility of knowledge from
operational activities, pilot projects, research, policy dialogue, and capacity-building efforts will be
enhanced through human- and learner-centered multipronged dissemination strategies. Cross-
fertilizing solutions, such as tacit knowledge capture and virtual communities, will be promoted.

C. Areas of Collaboration with Partners

9. Following a One ADB approach, knowledge collaboration will be sought across ADB
departments, with the ADB Institute, and with other knowledge partners. Partnerships will be
leveraged with international and national development agencies and stakeholders in public and
private sectors, academia and think tanks, big data entities, and civil society organizations. The
Ministry of Finance and ADB maintain an active policy dialogue for strengthening policies and
programs, including through monitoring of Indonesia’s economic recovery program. Bank
Indonesia and ADB maintain a successful cooperation framework involving joint economic
analysis and policy dialogues on selected topics to strengthen policy formulation. ADB has similar
knowledge partnerships with the National Development Planning Agency (BAPPENAS) and PT
Sarana Multi Infrastruktur, while also regularly engaging in knowledge forums involving a wide
array of government agencies in key sectors and themes of ADB operations. ADB also works with
higher education institutions and research agencies—such as the Surabaya Institute of
Technology, Centre for Strategic and International Studies, and Bandung Institute of
Technology—and could expand cooperation to other institutions.

D. Resource Allocation

10. The implementation of the country knowledge plan is led by ADB’s internal Indonesia
Knowledge Advisory Group (KAG), which is chaired by the country director of the resident mission
and comprises all ADB departments and offices involved in knowledge in Indonesia as well as
the ADB Institute. The KAG is guided by an annual high-level policy dialogue between ADB and
the government. Knowledge work will usually be undertaken by staff or consultants typically
funded under ADB’s technical assistance funds including trust funds. ADB will proactively seek to
promote partnership and cofinancing arrangements with key partners including the government.

E. Knowledge Competence or Expertise

11. The government has built up strong knowledge and expertise, particularly on
macroeconomic and fiscal policies. It has continually expressed its strong interest in partnering
with ADB to further strengthen its capacity for using and sharing its knowledge and expertise.
Indonesia aspires to have deeper engagement in global development by creating and exchanging
knowledge and supporting regional and subregional initiatives, including local currency
settlements for regional trade and border area development. The government has established a
bilateral development aid agency with a focus on the Pacific and expressed interest in working
with ADB on a triangular cooperation basis. ADB is well positioned to support this initiative,
particularly through regional cooperation and integration initiatives of mutual interest and
comparative advantage.
 Appendix 3 23

LIST OF LINKED DOCUMENTS

http://www.adb.org/Documents/CPS/?id=INO-2020

1. Inclusive and Sustainable Growth Assessment

2. Development Coordination Matrix
3. Indicative Country Operations Business Plan

Supplementary Document

4. One ADB in Indonesia: Leveraging ADB’s Sovereign and Nonsovereign Operations