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2010 OECD Economic Surveys: Indonesia 2010

image of OECD Economic Surveys: Indonesia 2010

This 2010 edition of OECD's periodic survey of the Indonesian economy includes chapters covering achieving sustainable and inclusive growth, phasing out energy subsidies, tackling the infrastructure challenge, and enhancing the effectiveness of social policies. It finds that Indonesia's economy withstood the recent global crisis very well, thanks to appropriate stabilisation policies and increased economic and financial resilience.  Nevertheless, a number of institutional reforms and policy changes will be needed to deal with the several cross-cutting challenges of decentralisation, capacity-building at the local level, and improved economic governance.

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Enhancing the effectiveness of social policies

Indonesia has made considerable progress over the years in improving the social conditions of its population, especially among disadvantaged groups, not least by raising government spending and strengthening social protection programmes. Nevertheless, in some respects social outcomes remain sub-par in relation to regional peers. In particular: – A rapid increase over the years in government expenditure on education has yet to deliver marked improvements in student performance, which is somewhat weaker than in comparator countries. Enrolment is particularly low in secondary education, suggesting the need to improve the transition from primary to higher levels of education. Efforts are also needed to enhance the quality of teaching. Indonesia will need to at least sustain current levels of education spending in relation to GDP over the longer term to ensure durable improvements in outcomes. – Government spending on health care and utilisation rates are lower than in comparator countries. Outcomes are also comparatively poor. As in the case of education, regional discrepancies in the health status of the population are narrowing, possibly due in part to the decentralisation of service delivery since the early 2000s. A publicly funded health insurance plan was launched in 2005 to protect vulnerable individuals against the risk of falling into poverty as a result of illness. The programme is being expanded to cover the entire targeted population of very poor, poor and near-poor individuals. – Indonesia has a number of social-assistance programmes for protecting vulnerable groups against adverse income shocks in periods of crisis. These programmes are reasonably well targeted, but there is considerable room for improvement. Social protection has been strengthened since 2005 with the implementation of government-funded conditional cash transfers and communitybased development programmes. Emphasis is now shifting from crisis mitigation towards an extension of the coverage of unconditional and conditional income support. The main challenge in this area is to extend social protection, especially through social security, to informal-sector workers, while strengthening coordination and seeking synergies among the existing programmes.

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