Opinion: Crucial times for Indonesia as it stands at development crossroad

Aug 18, 2014

Beate Trankmann

When the new Indonesian President moves into office in October, he will inherit a burgeoning middle-income country that stands at a critical development crossroad. Indeed, the next five years under his term will be crucial times for Indonesia, a country that has made encouraging progress in reducing poverty but which faces persistent equity challenges.

The prescription for the country’s inequality rests on three main pillars: promoting universal social protection; ensuring broad based access to basic social services especially health and education; and providing economic and employment opportunities, particularly for those who live in the country’s remote and less developed regions. Increased investments in basic public infrastructure, including health centers, schools as well as  roads and ports for enhanced connectivity, is also critical.

Rising costs make it increasingly difficult for Indonesia to compete in the low wage segment where its commodity export driven, low value added economy is currently positioned. The country will therefore need to make sustainable investments in enhancing the quality of its human capital to avoid the so-called middle income trap and transform its economy into a knowledge and service based high value-added economy which can compete globally. There is hope for this to happen given that Indonesia currently has a demographic dividend in the form of a large youth population. Indonesia must capitalize on this young population by investing in their education and skills development, including their capacity for entrepreneurship, innovation and technology adoption. If this is done, Indonesia could create a productive, innovative, and well educated workforce that can power economic growth into the future. 

Indonesia is well placed to continue its effective poverty reduction efforts while ensuring that economic growth and human development are equitable and sustainable. According to UNDP’s 2014 Human Development Report, Indonesia continues its upward momentum on the human development index. In fact, between1980-2013, Indonesia’s human development index has jumped by 45 per cent from 0.471 to 0.684. Its Gross National Income (GNI) per capita has soared by a whopping 206 per cent from US $ 2,931 to US $ 8,970.

However, while the HDI indicates that Indonesia with 12.7 years of expected years of schooling fares relatively well, additional measures are needed to enhance the quality of education as well to boost the share of the population completing secondary education. Mean years of schooling - measuring the number of years enjoyed by the generation of 25 years of age and above - has stagnated at 7.4 to 7.5 for almost a decade. Indonesia also ranks at the bottom end of the PISA scale - an international measure to assess 15-year old students’ performance on mathematics, science and reading.


Another factor that could impede human development progress is a failure to protect the country’s most vulnerable population.

This year’s Human Development Report explores human development from the angle of sustaining human progress through reducing vulnerabilities and building resilience. The Report says that despite global gains in human development, progress is slowing and is subject to short-term events such as natural disasters, internal conflicts or economic shocks.

Globally, around 842 million people suffer from chronic hunger, and more than 2.2 billion are living either near or in what is considered multidimensional poverty. More startlingly, around 80 percent of the global population lacks comprehensive social protection.

In Indonesia, around 28 million people are currently living under the national poverty line but according to 2011 World Bank data, 43 percent of the country’s 237 million people live on less than US $2 per day.  Many households may easily be pushed back into poverty, driven by events such as natural disasters, economic shocks or communal conflict. More comprehensive social protection mechanisms are needed to shield Indonesia’s poor and near poor from these vulnerabilities.


Indonesia’s policy makers are well aware of the challenge. Earlier this year following 10 years of preparation, outgoing President Susilo Bambang Yudhoyono launched a universal health care insurance with an ambitious target of having every Indonesian covered by the year 2019.

This milestone indeed provides a solid foundation for Indonesia to ensure greater equity in people’s access to opportunities and social services as well as improved protection of the poor and most vulnerable in Indonesia.

Mr. Yudhoyono’s policy is fully in line with the recommendations contained in The 2014 Human Development Report. The Report urges governments to commit to the universal provision of basic social services and social protection to build resilience, especially for the poor and other vulnerable groups. It argues that middle-income Asia-Pacific countries do not have to wait to become rich to provide adequate social protection or basic social services. It shows that Nordic countries, as well as countries such as the Republic of Korea, were able to provide universal basic social services when their per capita GDP was lower than that of India or Pakistan today. 

The pace of Indonesia’s sustainable development will rest in the hands of the incoming administration. In meeting challenges ahead, UNDP stands ready to help Indonesia’s 240 million people with the three pillars of recommended policy measures  - access to basic infrastructure and social services; social protection; and provision of economic and employment opportunities.

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