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Indonesia
>> Regional Overview >> Indonesia Overview
Summary Tables
Program Summary
Previous Years' Activities
2001, 2000, 1999, 1998, 1997Last updated: 53
Introduction
A stable, democratic, prosperous and unified Indonesia is a major U.S. interest. The vast archipelago straddles sea lanes vital to all of East Asia. It is the fourth most populous country on earth, the third largest democracy and the largest Muslim country, with vast resources of energy, minerals and biodiversity. Indonesia's transition to democracy and sustained economic growth is threatened by a failure of leadership and a lack of governance. A flexible new strategy and increased resources have allowed USAID to keep its programs responsive to the fluid situation. USAID and its partners are helping Indonesia build a framework of rules, regulations, institutions and a civil society that can support Indonesia's fledgling democracy and economic recovery while simultaneously responding to short-term crisis issues and critical humanitarian demands.
Development Challenge
Indonesia is experiencing a grave crisis in leadership. While politicians bicker and jockey in Jakarta, long-simmering resentments fueled by perceptions of injustice among ethnic, religious, and economic groups have flared across the country, generating a million internally displaced people and raising fears of Indonesia's breakup. Struggling to recover from an economic recession that began in 1997 that wiped out 15% of its gross domestic product, the economy is hobbled by pervasive corruption that affects everything from national policy decisions to village relationships.
Reformers in the Indonesian government are trying to strengthen political institutions that can provide greater transparency and accountability, improve governance, and reform corrupt systems. They are seeking ways to restore the confidence of both domestic and foreign investors, maintain civilian control of the military, develop processes for reconciling the abused and abusers, and institute major changes that will reform the judicial systems and decentralize power. A comprehensive decentralization process, begun in January 2001, is causing uncertainty among investors and officials, but is critical to maintaining Indonesia's territorial integrity. Indonesia faces great challenges to build and equitably finance local institutions of good governance that are democratic and accountable, and can manage services and resources effectively.
The economic and political crisis has had a dramatic social impact. The number of Indonesians living below the poverty line increased by around 10 million in the depths of the crisis, and although there has been noticeable improvement in recent years, over 40 million are still classified as poor. High inflation and widespread unemployment have reduced the ability of many households to purchase basic medicines and meet minimum nutritional requirements, resulting in an increase in micronutrient deficiencies, especially among women and children. Together with declining government resources for health services, this imperils many Indonesians. Children continue to drop out of school, which suggests that the long-term impact of the crisis may not yet be fully realized. Health care services are sought less frequently since stretched family budgets go to other priorities. Sexually transmitted diseases are on the rise as a result of inadequate condom use, delayed treatment, and increased prostitution.
USAID's strategy in Indonesia is to use program flexibility to deal tactically with short-term political, economic, and humanitarian crises that threaten to push Indonesia over the brink, while simultaneously helping Indonesia build a framework of rules, regulations, institutions, and a civil society necessary for long-term political and economic development.
To address short-term democratic and political crises, USAID is supporting constitutional reforms to clarify the current confusion over the roles and responsibilities of the President and Parliament. USAID is funding activities that provide training to hundreds of newly elected parliamentarians on drafting legislation and dealing with constituents, and is encouraging greater press responsibility in areas such as coverage of corruption and conflict. Finally, in response to Indonesia's January 2001 launching of its decentralization initiative, USAID is strengthening a network of local governments, parliaments, universities, and civil society organizations to increase their ability to respond effectively to the authority and resources being transferred to them.
In response to immediate economic challenges, USAID is increasing its efforts to improve tax administration in order to increase tax revenues. USAID also is working with Indonesians to cut farmers' food and fuel subsidies in order to free up more funds for poverty alleviation, and to adjust resource allocations to local governments to better match allocations with needs. To maintain macroeconomic stability in Indonesia and restore investor confidence, USAID is assisting with the timely reform and privatization of the banking system and the sale of assets acquired by the Government of Indonesia during the financial crisis.
USAID's crisis and conflict team has provided critical assistance to thousands of refugees affected by a spate of manmade and natural disasters, including those evacuated from Central Kalimantan in March 2001. USAID is supporting civil society development and community stabilization to reduce tension in conflict areas such as Papua and Aceh and is helping to resettle refugees returning to their homes in Maluku.
Although responsive to immediate demands, USAID has not lost sight of longer-term development goals in Indonesia. USAID-assisted nongovernmental organizations (NGOs) have strengthened local initiatives to document human rights abuses, and further civic education. Local governments have adopted a new, participatory planning process developed by USAID advisors to increase community access to local policy formulation and decision-making. The central parliament now broadcasts all meetings and commission conferences on cable television. And USAID activities continue to engage central and local government and civil society organizations on conflict resolution and reconciliation.
The new decentralization laws that came into effect in January 2001 afford new opportunities and risks that cut across all of USAID's areas of interest: democracy, economic reform, natural resources management, energy, and delivery of health and humanitarian services. USAID is the largest donor providing assistance on decentralization, and the only one with significant programs that work directly with local governments to build the capacities needed to play increased roles. USAID consultants advise on fiscal issues, natural resources management, environmental governance, and health service delivery.
USAID continues technical assistance to the ministries involved in trade and competition policy and regulation and for the establishment of independent regulatory agencies. As part of USAID's work on justice reform, USAID consultants are involved in a variety of programs to strengthen governance and provide investors with greater certainty.
USAID's energy program has helped influence and assist the government to reduce poorly targeted energy subsidies that drain the national budget and contribute to Indonesia's dire fiscal situation while promoting smuggling and inefficiency and contributing to poor air quality. USAID has been the primary bilateral donor working on energy sector reform and has helped leverage larger multilateral loans. This reform will provide a clear legal and regulatory framework for much-needed investment in the energy sector.
USAID programs have strengthened the nutrition and health surveillance system and increased the coverage of vitamin A programs. USAID's health and humanitarian assistance programs have helped alleviate the suffering of the thousands of people affected by conflicts and disasters across Indonesia. Through its longstanding partnership with local and international NGOs and with the World Food Program, USAID provides food aid to allow Indonesia to deal with the needs of some 700,000 internally displaced people. Until there is greater certainty that social unrest is under control, there will be a need for continued humanitarian aid.
Other Donors
The donor community in Indonesia breaks down into two groups: donors with annual program budgets of $1 billion or more and those with annual budgets of $250 million or less. Multilateral organizations-the International Monetary Fund, the World Bank, the Asian Development Bank, and the Islamic Bank-and the Japanese bilateral program constitute the larger donors. USAID is the largest contributor in the group of smaller donors, which also includes the European Union, the bilateral programs of Australia, Germany, the United Kingdom, France, Italy, the Netherlands, Canada, New Zealand, and South Korea, and private U.S., German and Dutch foundations.
Since the U.S. is a leading member of the International Monetary Fund, the World Bank and the Asian Development Bank allow USAID to work closely with multilateral donors on development issues. As part of the Consultative Group for Indonesia, USAID collaborates with both multilateral and bilateral donors. Despite its relatively modest level of assistance, USAID's flexibility and country presence provide a unique capability to play a leadership role in donor assistance. USAID has executed this role most notably in the development of civil society organizations and in its work on democracy and governance, economic reform, natural resources management and health and humanitarian assistance.
FY 2002 Program
The situation in Indonesia remains extraordinarily fluid, with quickly evolving crises often being matched by equally sudden opportunities. To accommodate this environment, in FY 2001, USAID shifted from a crisis response strategy to a transition strategy. Strategic objective names and numbers may not necessarily match those in the previous year's Budget Justification.
USAID's program seeks to retain a high degree of flexibility to respond effectively to these challenges. However, specific targets and performance indicators, especially in the areas of democracy and governance, may require adjustment more frequently than in more traditional assistance programs.
FY 2002 Development Assistance (DA) and Economic Support Funds (ESF) will continue to permit USAID and its partner organizations to help Indonesia deal with the multiple crises that are afflicting its fledgling democracy: social unrest; ethnic, class and religious conflict; separatist movements; corruption; social welfare needs; natural resources degradation; and uncertain protection of human and property rights. USAID will be able to support reformers within the government to strengthen the key processes and institutions required for efficient governance. These resources will provide funding and technical support for civil society organizations and media efforts to increase accountability and provide access for private citizens to the political process. The major theme running through all areas of USAID's dynamic strategy in Indonesia is justice: the right of the average Indonesian citizen to due process, fair and equal treatment, access to the political system, and legal recourse if aggrieved. Progress on justice sector reform will be critical to calming social unrest and establishing the context for sustainable economic growth.
Assistance in FY 2002 builds on that of FY 2000 and FY 2001. It will strengthen key Indonesian government institutions and civil society organizations. The program provides assistance to stimulate judicial sector reform, including assistance to develop professional and competent legal organizations. USAID is working with the national and local parliaments to improve their capacity for research and analysis and to draft legislative and constituent communications. The program provides training for political parties and for new parliamentarians to enable them to be responsible, accountable, transparent and active participants in the governance of the country. USAID also is working with government organizations and independent regulatory agencies on improved governance; supports media and advocacy groups; and helps promote human rights, ethnic and religious tolerance, and conflict resolution and reconciliation. USAID will implement these programs through a consortium of NGOs, both local and U.S.-based, and through long-term technical advisors.
USAID is working on economic reform, focusing on the financial sector, bank and corporate debt, including efforts on competition, anti-corruption, secured transactions and increased certainty for investors. It encourages small business development, particularly through support for microfinance lending, and assists NGOs and universities in their efforts to increase public participation in the economic reform process.
USAID's health program is directed toward the most vulnerable, protecting poor women and children by improving access to essential primary health services, supporting monitoring systems to improve efficiency of resource allocation, and encouraging better health information and nutrition. To improve food security for those most in need, particularly Indonesia's more than one million internally displaced, USAID is supporting better food management and policies, increased food accessibility, humanitarian assistance and efforts at conflict mitigation and reconciliation. USAID is working with the government and other donors to increase employment in targeted urban areas through the creation of temporary jobs that build, maintain, and rehabilitate basic infrastructure and community facilities.
USAID is helping to strengthen environmental management to protect areas under increased stress from the financial crisis and the breakdown of law and order while continuing to respond to global environment issues. Assistance goes to indigenous NGOs and local governments to strengthen environmental management and restructure essential energy and water services in urban areas. The program works with local governments to increase their capacity to handle the additional responsibilities flowing from decentralization, including greater community participation in the management of local resources and planning for public works.
USAID is helping create a more efficient and transparent energy sector. By minimizing the role of government as a regulator, reducing subsidies, and promoting private sector involvement, a reformed energy sector can contribute billions of dollars in tax revenue. A more efficient energy sector will also have positive environmental impacts, rationalize pricing, increase access to energy and help sustain Indonesia's natural resource base.
In addition to the bilateral program, there are several Asia and Near East regional activities in Indonesia. The East Asia and Pacific Environmental Initiative has eleven environmental and natural resources activities in realms such as biodiversity, fire suppression and coastal resources management; the Global Bureau's Global Technology Network supports U.S. technology transfer through private sector business linkages; and the United States-Asia Environmental Partnership undertakes initiatives toward a clean energy revolution in Asia.
Activity Data Sheets
- 497-007 Democratic Reforms Sustained and Deepened
- 497-008 Health of Women and Children Improved
- 497-009 Impact of Conflicts and Crises Reduced
- 497-010 Decentralized and Participatory Local Government
- 497-011 Foundation Set for Rapid, Sustainable, and Equitable Economic Growth
- 497-012 Strengthened and Decentralized Natural Resources Management
- 497-013 Energy Sector Governance Strengthened
Country Background Information Resources
CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
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Last Updated on: May 29, 2002 |
