164 

Indonesia
GDP per capita has been growing steadily at around 4% annually, gradually narrowing the large gap with
the upper half of OECD countries. Growth has continued to be driven by productivity growth.
Poverty rates have fallen steadily and income inequality appears to have moderated in recent years.
Nonetheless, inequality is pronounced, in particular between regions. Greenhouse gas emissions are low
per capita. Land use change is a major contributor to Indonesia’s total emissions as well as biodiversity loss.
Considerable progress has been made in infrastructure provision, particularly transport. Efforts to streamline
regulation and administrative processes have improved the business environment. While electricity
subsidies have been reduced, fuel subsidies have increased, including by shifting some to state-owned
enterprises. New electricity tariff regulations for independent power producers discourage private sector
investment in renewable energy.
Tackling informality and increasing the share of high-quality formal sector jobs, requires measures such as
improving skills by raising the quality of teaching and reducing barriers to formal sector employment such as
high minimum wages and dismissal costs. Continuing to improve the quality of regulation and governance
remains crucial for raising investment and encouraging formalisation. Greater regulatory certainty would help
improve private sector participation in infrastructure investment.

Growth performance, inequality and environment indicators: Indonesia

A. Growth C. The large gaps in GDP per capita and
Average annual growth rates (%) 2002-08 2012-18 productivity have diminished rather slowly
GDP per capita 4.0 3.8 Gap to the upper half of OECD countries4
1
Labour utilisation 0.4 0.3 Per cent
Labour productivity 3.6 3.4 0

-10
B. Inequality and environment
Annual variation -20
Level
(percentage points)
2018 2013-18 -30
Gini coefficient for rural areas2 32.2 0
-40
Gini coefficient for urban areas2 39.6 -0.6
Average of levels
-50
2015 2010-2012-2015
GHG emissions per capita3 (tonnes of CO2 equivalent) 3.7 (12.3)* 3.5 (12.8)* -60
GHG emissions per unit of GDP3 (kg of CO2 equivalent per USD) 0.4 (0.3)* 0.4 (0.4)*
Share in global GHG emissions3 (%) 1.9 1.8 -70
* OECD simple average (weighted average for emissions data)
-80

-90
GDP per capita GDP per employee
-100

Source: Panel A: OECD, Economic Outlook and Productivity Databases; Panel B: Statistics Indonesia; OECD, Income Distribution and National
Accounts Databases; International Energy Agency (IEA), Energy Database; Panel C: OECD, Economic Outlook and Productivity Databases.
StatLink 2 https://doi.org/10.1787/888933955009
  165

Policy indicators: Indonesia

A. Student performance is low B. The level of corruption is perceived

Average of PISA scores in mathematics, science and to be high
reading, 2015 Index scale of 0-100 from highest to lowest level of
perceived corruption,¹ 2018
500 80

70
475
60
450
50

425 40

30
400
20
375
10

350 0
INDONESIA Advanced Emerging INDONESIA Advanced Emerging
economies economies economies economies

Source: Panel A: OECD, PISA Database; Panel B: Transparency International Database on Corruption Perceptions.
StatLink 2 https://doi.org/10.1787/888933955883

Beyond GDP per capita: Indonesia

A. Poverty has significantly decreased
in both urban and rural areas
Percentage of population living in households with
consumption or income per person below the poverty
% line at USD 1.9 per day
35
2004 2017
30
B. Exposure to fine particulate matter
is higher than in advanced economies
Percentage of population exposed to PM2.5, 20171
Less than 10 μg/m3 10-35 μg/m3
% More than 35 μg/m3
INDONESIA

25
Advanced
20 economies

15
Emerging
economies
10

5 World

0
Urban areas Rural areas 0 10 20 30 40 50 60 70 80 90 100

Source: Panel A: World Bank, PovcalNet; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

StatLink 2 https://doi.org/10.1787/888933956757
166 

Indonesia: Going for Growth 2019 priorities

Enhance outcomes in education. Outcomes and teaching quality remain a concern, with many children
leaving school without basic skills.
 Actions taken: Programmes to improve teacher qualifications through certification and training
are ongoing. The government is using the national poverty database to improve the targeting of
conditional cash transfers to facilitate school attendance for children from poor households. The
revised 2018 budget targeted 19.7 million transfer recipients.
 Recommendations: Introduce regular teacher assessment and link teacher remuneration more
closely to performance and ongoing training. Continue to encourage higher enrolment rates
through access to cash transfers for eligible students. Increase employer engagement in vocational
education.
Improve the regulatory environment for infrastructure. Regulatory uncertainty, particularly at the
regional level, is hampering private investment in infrastructure via public-private partnerships.
 Actions taken: The government increased funding for land acquisition in 2017 and 2018 to remove
obstacles to key infrastructure projects.
 Recommendations: To increase private sector involvement, legal and regulatory certainty should
be improved, including through clearer property rights and project documentation for public-private
partnerships. Increasing the transparency of state-owned enterprises could help ensure they do
not crowd out private investment. Sub-national governments should be encouraged to allocate
more of their budget to infrastructure spending.
Reform labour regulations to reduce informality. Labour informality is high, excluding workers from
access to employment protection, on-the-job training and social security coverage.
 Actions taken: No action taken.
 Recommendations: Pilot lower levels of employment protection and discounted minimum wages
for youth in special economic zones. This includes lowering severance pay, accompanied by the
creation of unemployment insurance accounts. If these trials are successful, extend them. Reduce
administrative burdens for self-employed workers and micro enterprises to encourage formality.
Continue to make energy prices more cost-reflective. Explicit and implicit subsidies are poorly targeted,
and greenhouse-gas emissions are costly. New electricity tariff regulations discourage private investment
in renewable energy generation.
 Actions taken: Electricity subsidies were reduced for non-poor households in 2017. However,
spending on fuel subsidies increased in 2018 and the administratively set price of the previously
subsidised fuel has been held constant despite rising international oil prices.
 Recommendations: Continue to shift away from subsidies and towards more targeted social
assistance to address distributional concerns. Allow fuel prices to move more with prices in
international markets. Review the 2017 regulations determining tariffs for independent power
producers with the aim of making prices more cost-reflective and increasing certainty for investors.
  167

Ease barriers to entrepreneurship and investment, and strengthen institutions to fight corruption.
Businesses, foreign and domestic, face significant barriers to both formation and operation. Corruption
remains an impediment to business growth and the efficient functioning of the civil service.
 Actions taken: Central government licensing processes were eased in 2017 and 2018, including
through the operation of one-stop shops for large investors that process licences in three hours,
the launch of an online single submission system for licensing and by striking out large numbers of
regulations in some sectors. In 2018 a regulation was passed to ease the administrative process
for hiring foreign workers.
 Recommendations: Continue to streamline and simplify business regulation, paying special
attention to regulations in sub-national jurisdictions. Collect user feedback to improve the online
single submission system. Ease barriers to foreign investment by removing sectors from the
Negative Investment List. Sustain the fight against corruption, including by increasing resources to
the Corruption Eradication Commission and vigorously defending its independence.