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 change. 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has been reorganised, social protection systems have been established or enhanced, and the police and military have withdrawn completely from the political arena. A programme of decentralisation which has given more power and funding to local and regional administrations has also had a positive impact.

And in 2004 the country's State President was elected directly for the first time. Susilo Bambang Yudhoyono held the office for two terms, after which he was prohibited by the constitution from running for president again in the 2014 elections. He was succeeded as president by the former governor of Jakarta, Joko "Jokowi" Widodo. Again the elections were peaceful and largely without incident. Indonesia even managed the huge logistical challenges of holding an election with considerable success.

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. These deficits are increasingly being made a subject of public discussion by an ever more confident civil society.

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 within the institutions concerned. In the Corruption Perception Index compiled by the non-governmental organisation Transparency International Indonesia ranks 88th out of the 168 countries evaluated (2015).

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 discriminatory treatment in administrative terms, as well as threats and even violence from Islamist groupings.

In the past, there were repeated terrorist attacks on public institutions and tourist destinations. After a long cessation of such violence, an attack was again committed in Jakarta in January 2016. The Indonesian government is taking decisive action against terrorist networks, and a large majority of the population do not approve of Islamist movements. The country's larger Muslim organisations support an interpretation of Islam based on understanding among faiths.


Port of Jakarta

The dynamic economic development of the last ten years, with annual growth rates of between five and seven per cent, has made Indonesia an attractive market. Although economic growth in Indonesia did drop below five per cent in the second half of 2015, it is expected to recover again, with the growth rate reaching 5.3 per cent in 2016, according to the World Bank.

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.

Around fifty per cent of national economic activity takes place in the informal sector. 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. Each year, another 1.5 million new job-seekers pour onto the labour market. Unemployment amongst young people is particularly high and currently stands at more than 20 per cent.

So far, the country's economic growth and wealth of resources are only benefiting a small section of the population. According to the World Bank, some 38 per cent of the Indonesian population live in absolute poverty: the Human Development Index (HDI 2015) ranks Indonesia 113th out of 188 countries assessed.

With effect from 31 December 2015, the ASEAN Economic Community (AEC) came into being. By establishing an economic community, 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 resource bounty represents Indonesia's greatest development potential. The country has oil and natural gas reserves as well as numerous other mineral resources. Indonesia is the world's largest exporter of palm oil. Further export commodities are timber, rice, spices, tea, tobacco and natural rubber. Its long coastal waters are considered to have the world's most abundant stocks of fish. In 2014, a law came into force that prohibits the export of unprocessed raw materials. The aim is to boost value creation within Indonesia itself.

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 in order to reduce poverty: a main focus of the National Development Plan for the period from 2015 to 2019 is to promote small to medium-sized businesses and micro-enterprises as a vehicle for this.

Education and training remain a key issue under the new government. 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 scaling back the subsidies that used to go into fuel and electricity, the state can now invest more funds in social and infrastructure programmes.

Indonesia’s role as a geographical and cultural mediator 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 place. The Agreement provides for close political, economic and cultural cooperation. If the scoping exercise goes well, negotiations for a Comprehensive Economic Partnership Agreement (CEPA) between the EU and Indonesia could start some time in 2016.


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 deforestation and intensive use of the forest is slowly destroying this valuable natural resource. In the period from 2011 to 2014, Indonesia lost more than 18 million hectares of forest land, equivalent to twice the size of Portugal. In addition to the problem with the forests, the country's peat bogs are being drained for agricultural use – to make way for palm oil plantations, for example.

As a result of the slash-and-burn method of cultivation used by plantation owners, Indonesia regularly has to contend with forest fires during its dry season. In 2015, as a result of a sustained drought period and the climate phenomenon known as El Niño, the forest fires raged out control. According to estimates by the World Bank, the fires and the resulting smog caused the equivalent of more than 14 billion euros worth of damage.

Not only do these fires destroy the unique biodiversity of the rain forests. The forests and peat bogs also function as gigantic carbon sinks. But when they burn, they too release greenhouse gases. Indonesia is now one of the largest carbon dioxide emitters in the world.

Priority areas of German co­op­er­a­tion with Indonesia

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

  • Energy and climate change mitigation
  • Sustainable economic development for inclusive growth
  • Good governance and global networks.

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

Energy and climate change mitigation

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

The climate being a public good, Germany has entered into a strategic partnership with Indonesia to protect it. One area of action of this partnership is the reduction of emissions by making greater use of renewable energies. 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. In order to reduce greenhouse gas emissions in urban areas, Germany is supporting pioneering approaches to climate-friendly waste management.

Since a large part of the emissions is released as a result of the destruction of the rain forest, Germany is also helping the Indonesian government to reform the legislation governing the country's forests. It is hoped that this will lead to a sustainable utilisation of the forests. Furthermore, it is hoped that measures being carried out as part of the national REDD+ (Reducing Emissions from Deforestation and Forest Degradation) programme will teach the local population that there are alternatives to logging.

Climate protection will continue to remain the focus of our bilateral activities for some time to come. To help it coordinate and streamline such activities, the BMZ is working closely with Germany's Environment Ministry.

Sustainable economic development for inclusive growth

Apprentices at an Indonesian vocational school practising on metal

Germany is supporting Indonesia in its efforts to shape the country's economic development in a way that is environmentally responsible and benefits as many of its people as possible.

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 qualified skilled workers. With the help of the German-Indonesian Chamber of 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 country-level conditions sufficiently so that a nationwide social security system can be introduced.

Good governance and global networks

The key concern behind Germany’s involvement in this particular area is to provide support for reforms that will help to achieve transparent and efficient delivery of public services. To this end, Germany is advising the Indonesian government on how to prepare administrative reforms and implement them at the national, regional and local levels. In addition, the work of the Corruption Eradication Commission (KPK) is receiving support.

On behalf of the BMZ, the Federal Institute for Geosciences and Natural Resources (BGR) is helping Indonesia to enhance its ability to protect the population against natural disasters by implementing a project to scale down the geological risks within the country.

Indonesia is playing an increasingly important role in global political processes. At the same time, Indonesia is building capacities and structures for its own programme of development cooperation. Germany actively supports this emerging economy in its efforts to position itself internationally and become increasingly active as a donor within the scope of South-South cooperation. Indonesia also wants to develop its triangular cooperation, in particular with Myanmar.

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