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Indonesia
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Situation and Cooperation
Indonesia has oil and natural gas reserves as well as numerous other mineral resources. The country is an exporter of timber, rice, spices, coffee, tea, tobacco, natural rubber and palm oil, amongst other products. Yet the country's poor economic performance is one of its main problems. Institutional and structural shortcomings deter potential private investors. Entrepreneurs are put off by the country’s 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. Each year, another 2.5 million new job seekers pour onto the labour market. Unemployment amongst young people is particularly high and currently stands at 30 per cent.
The Human Development Index (HDI 2008) ranks Indonesia 109th out of 179 countries. The World Bank has classified the country as a lower-middle-income economy. Yet poverty dominates the lives of much of the Indonesian population. Only a small group of people benefit from the wealth of raw materials in a country where prosperity is distributed very unequally. Java is the political and economic hub of the Indonesian archipelago. In the past, there has been little investment on the other islands in infrastructure, education or basic social protection.
Although some successes have been achieved in fighting poverty, about fifteen per cent of Indonesians still live below the national poverty line. Some 110 million people – that is almost half the population – live on the equivalent of less than two US dollars a day.
Governance problems, widespread corruption and a lack of legal security mean that Indonesia is far from making the best possible use of its great potential. On the Corruption Perception Index published in 2008 by the non-governmental organisation Transparency International, Indonesia is ranked 126th out of 180 countries.
Reforms and conflicts
Since the removal of the Suharto dictatorship in 1998, Indonesia has been going through a process of political change. Over 300 reform laws and decrees have been adopted since then. For example, freedom of the press has been granted, the banking sector has been reorganised and the military has withdrawn completely from the political arena. In 2004, parliamentary elections and also the first ever direct presidential elections were held; both passed off peacefully.
A programme of decentralisation has resulted in more power and freedom for district administrations. Provincial and local governments have a central role to play in achieving the Millennium Development Goals (MDGs) because they are now the main providers of public services. However, they often make inefficient use of their financial resources, and regional and local institutions still receive too little capacity-building assistance. This in turn hampers the rapid realisation of decentralisation and endangers the achievement of the MDGs. Whilst progress has been made towards reducing poverty (MDG 1) and promoting gender equality (MDG 3), much remains to be done towards achieving universal primary education and basic healthcare (MDGs 2, 5 and 6).
Despite the strong sense of national identity, Indonesia is confronted with various independence movements, which can to some extent be traced back to its colonial past: in 1963, sovereignty was gained over the western part of the island of New Guinea (today's Papua province); and in 1976 the Portuguese colony of East Timor was annexed. Following violent clashes, East Timor, today known as Timor-Leste, was placed under UN administration in 1999 and has been officially independent since 2002. To date, it has not been possible to resolve the problems with the independence movement in Papua.
And in Aceh province in the north of Sumatra, over 20 years of fighting between the military and the "Free Aceh Movement" (GAM) have cost more than 12,000 lives. However, the tsunami tragedy has been used in Aceh to move the peace process forward. In August 2005, the Indonesian central government concluded a peace agreement with the separatists. Free and fair elections followed in December 2006. Germany will continue to support the peace process, thus helping to heal the social divides in Aceh.
Development potential
Its large population and wealth of raw materials represent Indonesia's greatest development potential. The country is a member of the Organization of the Petroleum Exporting Countries (OPEC) and produces oil and gas. It also exports tin, nickel, copper, coal, bauxite, gold, timber and many different kinds of 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. Political liberalisation has created new opportunities for people to represent their common interests collectively. Consequently, there has been a sharp rise in the number of non-governmental organisations.
Priority areas of German cooperation with Indonesia
Germany is Indonesia’s fourth biggest bilateral donor after Japan, Australia and the US. Indonesian-German cooperation is focused on three priority areas, which were defined jointly with the Indonesian government at the government negotiations in October 2011 as:
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Climate protection
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Private-sector promotion
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Good governance / decentralisation
In addition to these three priorities, health policy measures were agreed, for example to combat avian flu. Germany pledged 188.75 million euros to Indonesia for the years 2011/2013.
In addition to its regular development cooperation with the island state, Germany also made Indonesia – along with Sri Lanka – the focus of its reconstruction aid after the tsunami of December 2004. Aid was focused in particular on Aceh Province in Northern Sumatra, which was hit particularly hard by the tsunami. Between 2005 and 2009, the German government made a total of 500 million euros available to Indonesia, making it the largest bilateral donor for post-tsunami reconstruction.
German funding has helped to construct 6,000 houses for some 30,000 people and 17 new schools for 12,000 schoolchildren. As a result, practically the entire population now has a roof over their heads, and children can go to school again. This work has partly been funded by the 670 million euros donated by the German public.
German efforts to help reconstruct the health system have also been successful, and have helped reduce mother and child mortality rates in Aceh. Another Indonesian-German development cooperation project set up a microfinance programme in Aceh, by means of which it has been possible to treble the number of loans extended to businesses run by women in the last three years. Furthermore, Germany is also supporting Indonesia's authorities in their efforts to develop protective measures against future natural disasters.
Climate protection
Indonesia's environment and its natural resources are under great threat. Forestry experts reckon that, over the next 10 to 15 years, illegal logging and overexploitation will result in the final destruction of the forests that still remain. The coastal waters, with their abundance of fish and other species, are also at great risk. A unique ecosystem is about to be lost – with appalling consequences for biodiversity and the global climate. Climate protection is therefore a priority of development cooperation between Indonesia and Germany.
Indonesia is the world’s third-largest source of carbon dioxide emissions from deforestation and forest and peat bog fires. Indonesian-German development cooperation on climate change mitigation consists of measures in the fields of forestry, environmental protection, energy and agriculture. For example, Germany is supporting the forests ministry with regard to reforming forestry administration, capacity building and curbing deforestation. Further priorities of development cooperation in the area of climate change mitigation are measures to monitor environmental pollution by industry and programmes to improve transport systems in medium-sized cities.
Private-sector promotion
Economic growth is a prerequisite for reducing poverty. One of the major drivers of economic growth is the private sector. The promotion of this sector is therefore a priority of Indonesian-German development cooperation.
Germany is advising Indonesia on establishing a vocational education and training system, with a view to improving the training of the Indonesian workforce in order to satisfy demand from the labour market. Furthermore Indonesian-German cooperation focuses on support for small and medium-sized enterprises, because such businesses are capable of creating a particularly large number of jobs and they stabilise the national economy. Support for microfinance institutions is another of the measures in this area.
Good governance / decentralisation
The policy of decentralisation initiated in 1998 has greatly altered the situation in Indonesia: regional administrations now have more powers, but they also have greater responsibility. The aim of the reform process is to develop efficient structures and to improve the level of service delivered to the public. A further aim is to increase the involvement of the people in the decisions taken by the government.
In the transition phase, however, there are also risks associated with decentralisation. The regional authorities are often poorly equipped and trained, as a result of which they are unable to discharge their responsibilities adequately. There is also an increased risk of corruption becoming worse in the local authorities.
German development cooperation supports Indonesia’s policy of decentralisation. Programmes are being developed which serve as a model to help solve the problems of decentralisation at the provincial, district and municipal levels. The aim is to later transfer these models to other parts of the country. The focus is on building the capacities of public authorities and promoting good governance. These measures are being combined with the programmes in other priority areas.
Debt relief
Indonesia does not meet the criteria for inclusion in the enhanced HIPC Initiative. In order to continue to qualify for preferential loans from the World Bank in the future, the country submitted an interim Poverty Reduction Strategy Paper (PRSP) to the World Bank and the IMF in 2003.
Germany has cancelled some of Indonesia’s Financial Cooperation debts on condition that the Indonesian government invest half that amount out of its own funds in measures to improve basic education. To date, six such "debt swaps", as they are called, have been agreed. The funds will be used, for example, to build further training centres for science teachers and junior secondary schools in the underserved east of the country; to finance a programme to encourage small and medium-sized enterprises to undertake environmental investments; and to pay for measures to upgrade four national parks.
Indonesia is also a pilot country for the Debt2Health debt swap initiative coordinated by the Global Fund to Fight AIDS, Tuberculosis and Malaria. In September 2007, the German Minister for Economic Cooperation and Development, Heidemarie Wieczorek-Zeul, signed an agreement under which Germany granted debt relief of 50 million euros to Indonesia. In return, the country pledged half of the amount of the cancelled debt to the Global Fund to support that organisation’s health programmes in Indonesia.
Information
Publications
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Strategy for Development Cooperation with Global Development Partners
(PDF 543 KB, accessible) -
German Development Cooperation in the Forest Sector
(PDF 249 KB, accessible) -
Decentralisation and local self-government
Leaflet
(PDF 372 KB, accessible) -
Disaster Risk Management – Contributions by German Development Cooperation
(PDF 1 MB, accessible) -
Promoting democracy in German development policy: Supporting political reform processes and popular participation
Special 137
(PDF 482 KB) -
Technical and Vocational Education and Training and the Labour Market in Development Cooperation
Strategies 140
(PDF 841 KB)
