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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. They encourage consumption, increase greenhouse-gas emissions, and are costly. 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 was 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.

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.