Indonesia is a lower middle-income country with a wealth of natural resources. Strong and sustained economic growth in Indonesia has created jobs and increased public expenditures on health, education and infrastructure, but significant poverty persists, particularly in Eastern Indonesia. More than 43 percent of Indonesia’s 247 million inhabitants live on less than US$2 a day and remain vulnerable to economic shocks and natural disasters. The majority of poor Indonesians still live in rural areas. Some 35 percent of Indonesians depend on agriculture for their incomes. Indonesia ranks 121 out of 187 countries on the United Nations Development Programme's 2012 Human Development Index.
Indonesia, a relatively new but vibrant multi-party democracy, has held several peaceful and legitimate elections since it emerged from authoritarian rule in 1998. A key feature of Indonesia’s democratic system is the decentralization of significant powers from the centre to the 33 provinces and 497 districts. Decentralization reforms have outpaced the capacity of local governments to deliver social services, which remain inadequate by middle-income country standards. As a result, Indonesia may fail to reach some Millennium Development Goal targets, particularly those related to maternal and child health.
The private sector plays a dominant role in the Indonesian economy. The formal economy largely comprises business conglomerates, state-owned enterprises and foreign investors (primarily in the extractives sector). An estimated 70 percent of Indonesia’s private sector belongs to the informal sector, which is characterized by a large number of micro, small and medium-sized enterprises. Women account for 65 percent of the informal economy.
As a member of ASEAN and APEC, and the only Southeast Asian member of the G-20, Indonesia plays a key role in regional stability in Southeast Asia.
In 2014, Indonesia was confirmed as a country of focus for the Government of Canada's international development efforts.
Canada's development objective in Indonesia is to improve sustainable economic prosperity for poor women and men, through building economic foundations, investing in people and strengthening democratic governance.
The Government of Indonesia has outlined a number of development priorities in its National Medium-Term Development Plan 2010-2014 and other important policy documents. These priorities include:
- strengthening the government's ability to provide services;
- improving the quality of human resources;
- enhancing the capacity of science and technology development and strengthening economic competitiveness;
- continuing reforms related to economic growth in the regions;
- improving management of natural resources.
Building Economic Foundations
Canada will support governments in order to help them:
- stimulate economic development by implementing national policies for local and regional economic development;
- generate and manage revenue through taxation and royalties;
- procure goods and services;
- manage public finances in a transparent and gender-responsive manner;
- reduce trade and investment barriers.
Canada will also explore opportunities to support the regulatory environment for public-private partnerships and women’s economic empowerment and will support the provision of technical assistance to establish and apply policy on the use of natural resources, both non-renewable and renewable.
Key anticipated results
- Improved capacity of governments to strengthen legal and regulatory frameworks, systems and implementation aimed at creating stable national and local economies.
- Strengthened gender-responsive public sector financial and management capacity at the local, regional and national levels.
- Increased capacity of local, regional and national institutions to manage natural resources sustainably and responsibly.
Investing in People
Indonesia’s population is young and growing: currently one in four Indonesians is 15 years of age, or younger. While this demographic dividend will yield a healthy labour supply in the future, there is currently a shortage of qualified workers within the private sector. Canada’s support will enhance the capacity of educational institutions to meet labour market demands, as defined following consultations involving the Government of Indonesia and private sector actors.
Key anticipated results:
- Increased access to essential demand-driven skills training and knowledge needed for formal labour market participation.
- Increased availability of appropriate, meaningful and structured workplace learning opportunities.
- Results-based learning initiatives that support business growth, market expansion and productivity.
Canada’s long-standing support to Indonesia’s democratic development provides a unique niche for programming in the areas of religious pluralism and public-sector reform. Canada will support Indonesia’s objectives to further advance democracy by:
- championing a more equitable and inclusive democratic society served by strong public sector institutions where citizens, including religious minorities, can exercise their human rights ;
- strengthening the capacity of the public sector, including institutions that advance democratic processes.
Given that Indonesia is a lower-middle income country, the Government of Indonesia views foreign assistance as a partnership between equals, as defined in the 2009 Jakarta Commitment, a country-specific aid effectiveness action plan signed by the Government of Indonesia and all donors, including Canada. The donors committed to aligning their programming with the development priorities of the Government of Indonesia, as defined in the National Mid-Term Development Plan (2009-2014) and the Master Plan for Economic Development (2011-2025).The main elements of the Jakarta Commitment are:
- strengthening local ownership;
- building more effective and inclusive partnerships;
- delivering and accounting for results.
- Helped create 2,759 new jobs—a 248 percent increase since 2009—by providing technical expertise to small and medium-sized businesses, business development organizations and microfinance institutions.
- Supported improved management and training skills for business development organizations, which provided 53 services, such as market research and quality control, to 5,743 clients.
- Helped increase the knowledge and skills of 4,200 government officials in budgeting and planning for local services.
- Implemented gender-responsive budgets for 27 ministries and institutions and 10 pilot provinces.
- Supported the provision of 176,041 loans to micro, small and medium-sized enterprises worth US$219.6 million, more than twice the target in terms of number of loans and total dollar value.
- Helped improve the investment climate by supporting the enactment of 25 laws, regulations, amendments and codes and by encouraging the improvement or elimination of an additional 24 procedures or regulations, leading to direct cost compliance savings by the private sector of over US$900,000.
- Helped 10,724 farmers to develop and apply business skills to manage 176,549 hectares of land sustainably and increase revenue by $7,204,864.
- Supported 2,927 community income generation projects in cash crop production, renewable energy and ecosystem protection, reaching 1,509,169 beneficiaries in 78 sub-districts and increasing net household incomes by US$137 per year.
- Supported mangrove restoration in 60 villages, benefiting 1,237 households and increasing incomes by 50 percent.
- Set up 48 nurseries and 27 farmers’ demonstration trials to promote and establish an agroforestry system that will be used on a 500,000 hectare area.
- Helped create 2,628 new jobs – a 230 percent increase since 2009 – in the seaweed, cashew nut and coconut industries.
- Helped train staff in nine business development organizations, enabling them to serve 5,511 clients from small and medium-sized businesses.
- Helped 12 microfinance institutions expand their loan portfolios by 19 percent over the previous year, supporting 175,000 microenterprise loans worth nearly $29 million, 89 percent of which were to women.
- Initiated green farm practices that benefit 1 million farmers in production of organic fertilizers and coconut-shell charcoal briquettes, bee-keeping, seaweed farming and tree nurseries.
- Supported 193 villages to identify 2,375 environmental and sustainable livelihood initiatives in coffee and cocoa estate agroforestry, fish pond management and non-timber forest product development.
- Assisted 80 villages to develop 10 watershed action plans to improve water quality and create more ecologically-sustainable livelihoods.
- Supported training for 26,000 people in participatory planning for improved sanitation and water, and introduction of new techniques for livestock, crop, soil and pest management.
- Rehabilitated 1000 hectares of mangroves, while a moratorium against mangrove clearance will protect a further 12,700 hectares.
- Secured land titles for landless farmers for thousands of hectares for sustainable fishponds, animal husbandry, home industries, the use of bio fuels, composting, and the production of organic food.
By working with Canadian and international partners, Canada is working to improve the health and rights of women and children globally, which includes the country of Indonesia.
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