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Indonesia

Situation and cooperation

Inhabitants of the Bunaken island near Manado, Indonesia

Since the removal of the Suharto dictatorship in 1998, Indonesia has been going through a process of political transformation. Numerous reform laws and decrees have been adopted since then. For example, freedom of the press has been granted, the banking sector has been reorganised, social protection systems have been established or enhanced, and the police and military have withdrawn completely from the political arena.

Positive impacts have also been achieved through a decentralisation programme that has given more powers to local and regional authorities. The transfer of considerable budget funds to districts and municipal authorities has provided significant new scope for local public investment. That scope must now be used in an effective and transparent manner.

In 2004, the country's president was elected directly for the first time. Susilo Bambang Yudhoyono governed for two terms. He was succeeded by the former Governor of Jakarta, Joko "Jokowi" Widodo.

Rule of law and governance

For a long time, the political culture in Indonesia was characterised by the government's clientelism, parliament's weak position, a lack of transparency in the judicial, financial and security sectors and a cumbersome administration prone to corruption.

In many areas, the necessary reforms have not yet been completed. For example, the justice system is not yet able to guarantee that all its legal proceedings are fully based on the rule of law. Corruption remains widespread, and the government's efforts to combat it sometimes meet with a good deal of resistance. In the Corruption Perceptions Index compiled by the non-governmental organisation Transparency International, Indonesia ranks 90th out of the 176 countries evaluated (2016).

However, these deficits are increasingly being made a subject of public discussion by an ever more confident civil society. Political liberalisation has created new opportunities for people to voice their interests collectively. There has been a sharp rise in the number of non-governmental organisations. Although they have to be registered, they are mostly able to operate without any particular difficulty.


Women studying the Koran in the Istiqlal Mosque in Jakarta

Indonesia's constitution guarantees freedom of religion within the scope of the six officially recognised religions (Islam, Buddhism, Protestant and Catholic Christianity, Confucianism and Hinduism). However, shortcomings in the protection of minority groups and in the rule of law mean that persons belonging to religious minorities frequently face disadvantages, and even threats and violence from Islamist groups.

In the past, there were repeated terrorist attacks on public institutions and tourist destinations. The Indonesian government is taking decisive action against terrorist networks, and a large majority of the population reject Islamist movements. The country's larger Muslim organisations support an interpretation of Islam based on inter-faith understanding.


Economy

Port of Jakarta

Indonesia has oil, natural gas and coal reserves as well as numerous other mineral resources. After Malaysia, the country is the world's biggest producer of palm oil. Further export commodities are timber, cocoa, coffee, tea, tobacco, natural rubber and textiles.

In 2014, a law came into force that gradually introduced a ban on the export of unprocessed metal ores. The government's intention is to boost value chain development within Indonesia, that is, generate a greater profit domestically by processing the products.

The dynamic economic development of the last ten years, with annual growth rates of about five to six per cent, has made Indonesia an attractive market. The International Monetary Fund (IMF) expects that economic growth will continue at the same rate in the coming years.

In key sectors of the economy, state-owned enterprises still exist, with some operating as monopolies and others competing against the private sector. Since 2010, however, state-owned enterprises are gradually being privatised, and efforts are being made to enhance the investment conditions for foreign companies.

The informal sector accounts for around fifty per cent of gross national income. Entrepreneurs and investors are put off by Indonesia's unclear legislation, cumbersome bureaucracy, poor infrastructure and shortage of skilled labour. As a result, the country is seriously failing to generate enough jobs to keep pace with population growth. In particular, youth unemployment is very high. It currently stands at about 20 per cent.

So far, the country's economic growth and wealth of resources are only benefiting a small section of the population. The lives of large numbers of Indonesians are still dominated by poverty. According to the World Bank, some 36 per cent of the Indonesian population are poor or vulnerable to poverty. The most recent Human Development Index (HDI) ranks Indonesia 116th out of 189 countries assessed.

With effect from 31 December 2015, the ASEAN Economic Community (AEC) came into being. By establishing an economic community, the ten members of the Association of Southeast Asian Nations have expressed their intention to take regional integration a step further.


Development potential

Worker at the batik manufacturer Danar Hadi in Solo, Indonesia

Its wealth of resources represents Indonesia's greatest development potential. In addition to oil and gas, the country also has tin, nickel, copper, coal, bauxite, gold, timber and many agricultural products. Its long coastal waters are considered to have the world's most abundant stocks of fish.

Indonesians display a great deal of individual initiative. Almost half of those in work are either self-employed or work in micro-enterprises. The government wants to exploit this potential in the long term: the national development plan for the period from 2015 to 2019 focuses mainly on the promotion of micro, small and medium-sized enterprises as a vehicle for reducing poverty and raising per capita income.

Education and training remain a key issue under President Joko Widodo. The government's goal in the education sector is to improve the quality of education and people's access to education, especially for poorer sections of the population. Since 2003, government administrations have pledged to invest twenty per cent of the budget in education. The government has fulfilled this pledge every year since then.

And, by considerably scaling back the subsidies that used to go into fuel and electricity, the government can now invest more in social and infrastructure programmes.

After China and India, Indonesia is the most important Asian growth market. The country's role as a geographical and cultural intermediary in South-East Asia is especially interesting for foreign investors. Since November 2009, a Partnership and Cooperation Agreement between the EU and Indonesia has been in force. The Agreement provides for close political, economic and cultural cooperation. In July 2016, negotiations began for a Comprehensive Economic Partnership Agreement (CEPA) between the EU and Indonesia.


Environment

Indonesian rain forest in the mist

Indonesia is still home to the world's third largest rain forest, following Brazil and the Congo Basin. However, illegal logging and too intensive use of the forest is slowly destroying this valuable natural resource. According to the Food and Agriculture Organization of the United Nations (FAO), more than 27 million hectares of forest were lost between 1990 and 2015 – an area about the size of New Zealand. As a result of plantation owners' slash-and-burn techniques, large-scale forest and peat fires break out regularly during the dry season. In 2015, they went completely out of control.

Not only do these fires destroy the unique biodiversity of the rain forests. The forests and peat bogs also function as gigantic carbon sinks. Fires turn sequestered carbon into carbon dioxide, a greenhouse gas. Indonesia has thus become one of the biggest emitters of carbon dioxide worldwide – with serious consequences for biodiversity and the global climate.

In response to the environmental disaster of 2015, the Indonesian government announced a number of preventive measures. Among other things, it is going to restore the hydrology of drained peatlands, and there will be systematic action to identify and punish persons who have deliberately started a fire. The government is also planning to transfer the use rights for more than twelve million hectares of forest to local authorities.


Priority areas of German co­op­er­a­tion with Indonesia

Development cooperation between Indonesia and Germany focuses on the following three priority areas:

  • Energy
  • Environment
  • Sustainable economic development and TVET (technical and vocational education and training)

The two sides will continue to pursue the former priority area of "Good governance" as a cross-cutting issue in all areas of cooperation. Specifically, Germany is supporting measures to increase government revenue and to reduce corruption.

At the government negotiations in November 2015, Germany committed funding worth some 555 million euros to Indonesia. Of this amount, 43.6 million euros has been earmarked for Technical Cooperation. 512.2 million euros has been earmarked for Financial cooperation, of which up to 480 million euros will be provided as reduced-interest loans for projects to reduce emissions. In future, bilateral projects are to be better integrated into regional processes. This applies, in particular, with regard to the newly founded ASEAN Economic Community, AEC.


Energy

A worker at a geothermal power station in Lahendong on the island of Sulawesi, Indonesia

In order to protect the global climate, which is a global public good, Germany has entered into a strategic partnership with Indonesia. One area of action of this partnership is the reduction of emissions by making greater use of renewable energy. That is why Germany is supporting the Indonesian government's national geothermal energy programme. Also in development are projects to bring electrification to remote islands in the archipelago, and to encourage the use of sustainable hydropower.


Environment

Loading of tropical timber in the port of Jakarta, Indonesia

Since a large proportion of greenhouse gas emissions is released as a result of the destruction of tropical forests, the Federal Ministry for Economic Cooperation and Development (BMZ) is helping the Indonesian government to implement forestry reforms that facilitate sustainable forest management. Under the REDD+ (Reducing Emissions from Deforestation and Forest Degradation) programme, alternatives to logging are to be demonstrated to the local population. The BMZ also assists the Indonesian government in carrying out its plan to hand over forests to local authorities. It is providing advice, for instance, on how to set up local forest authorities.

Within this priority area, Germany is also providing advisory services to the Indonesian government on how to adjust its climate change mitigation policy and how to implement climate action plans.

Moreover, Germany is the biggest donor to Indonesia's national parks. The BMZ is supporting Indonesia in setting up and expanding protected areas and protecting biodiversity. Another focus of Indonesian-German development cooperation is on providing advice to rural people with regard to the development of sustainable supply chains, especially for palm oil, cocoa and rubber.


Sustainable economic development and TVET (technical and vocational education and training)

Apprentices at an Indonesian vocational school practising on metal

Economic growth is a prerequisite for reducing poverty. Germany is supporting Indonesia in its efforts to shape the country's economic development in such a way that it is environmentally responsible and inclusive.

One aim is to improve investment conditions and to make selected value chains ecologically sustainable. Secondly, a vocational training programme is to be implemented that has the aim of increasing the number of well-trained skilled workers. With the help of the German-Indonesian Chamber of Industry and Commerce (EKONID), the German government is also supporting the development of vocational education in line with market needs, in order to improve the employment and income opportunities of young people in Indonesia. Some 10,000 young people in vocational education will benefit from these measures each year.

In addition, efforts are being made to improve the general environment for the introduction of a nationwide social protection system.


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