OECD Economic Surveys: Indonesia 2018

Annex. Progress in structural reform

Abstract

This Annex reviews actions taken on recommendations from previous Economic Surveys that are not covered in tables within the main body of the Key Policy Insights. Recommendations that are new to this Survey are listed at the end of the Executive Summary and the relevant chapters.

 

Recommendations in previous Surveys	Actions taken since October 2016
A. Promoting inclusive and sustainable economic growth
Direct more public resources to improving education access and outcomes. Continue regular teacher assessments and professional development, and link teacher salaries more closely to qualifications and performance.	The 2019 State Budget targets 20.1 million students to be reached by the “Smart Indonesia” programme, which provides financial support to poor students who stay in school.
Raise public spending on infrastructure. Focus on transportation and logistics to support industry, as well as natural disaster prevention and water treatment.	The 16th economic policy package, released in July 2017, focused on reducing logistics costs. It includes the development of regional distribution centres, and aims to speed up processing of imports and exports by simplifying and reducing documentation.
Avoid protectionist measures that inhibit openness to trade and foreign investment with uncertain development payoff.	In 2018 the authorities relaxed foreign investment restrictions in the insurance sector and decided to allow foreign universities to open branches in Indonesia in co-operation with local private universities. The regulation relating to employing foreign workers was also changed to ease procedures. .
To meet rising power needs, invest in low-carbon generating capacity, including renewables and geothermal sources.	In 2017 the government signed 68 power purchase agreements with private companies who will build renewable energy power plants.
Introduce a sub-minimum wage for youth directly linked to the general minimum wage.	No action taken.
Reduce impediments to hiring and dismissal. Reduce onerous severance payments, and ease dismissal procedures in the formal labour market. In return, introduce unemployment benefits coupled with individual unemployment savings accounts.	No action taken.
Improve the enforcement of intellectual property rights.	No action taken.
Remove formal education from the negative investment list.	In January 2018 the government decided to allow foreign universities to open branches in Indonesia in co-operation with local private universities.
Encourage tertiary education financing through establishing a student loan system.	In collaboration with the Ministry of Research, Technology and Higher Education, the state-owned bank BRI launched a student loan programme in March 2018 named "Briguna Flexi Pendidikan". It is targeted at master and doctorate students who already have a fixed income.
Provide incentives for investment in skills. Create a national training fund to consolidate resources allocated to training and direct them to their most cost-efficient use.	No action taken.
B. Reducing poverty and inequality
Increase, and further improve targeting of, spending on poverty alleviation and health measures.	Conditional cash transfers continue to expand with the Family Hope Programme (PKH) granted to the 10 million poorest families by the end of 2017. The unified database of vulnerable households is being used to improve targeting.
Expand existing programmes to tackle stunting, including by encouraging breastfeeding.	In August 2017, the government launched the Accelerated Stunting Reduction Strategy which focuses efforts in 10 priority districts. The President committed in 2018 to reduce the stunting ratio to 28% by 2019 from 30% in 2017.
Liberalise the importation of food. Refocus National Logistics Agency (BULOG) activities on managing emergency supplies.	No action taken.
Increase financial inclusiveness by further developing branchless banking, drawing lessons from such countries as India, Mexico, the Philippines and Kenya.	As of December 2017, the Laku Pandai programme which aims to expand branchless banking covered 13.6 million customers in 27 banks compared to 3.7 million in 20 banks a year before.
Tackle labour market informality by reducing rigidities in the formal sector, and by enhancing the effectiveness of the tax-transfer system for poverty alleviation and paying other social benefits.	The coverage of the unified database of vulnerable households has continued to improve.
Streamline social assistance, and integrate social security payments with the income tax system. Boost funding for the most efficient measures, such as conditional cash transfers. Continue efforts to create a unified database of beneficiaries.	Conditional cash transfers continue to expand with the Family Hope Programme (PKH) granted to the 10 million poorest families by the end of 2017. The coverage of the unified database of vulnerable households has continued to improve.
C. Making the most of natural resources while preserving the environment
Refocus the mineral ore export ban based on an evaluation of the costs and benefits of onshore processing for each mineral. Provide infrastructure and electricity to the new smelters.	The export ban was relaxed in January 2017 for firms that get a new mining licence. The new licences impose divestment of up to 51% and the obligation to build a smelter within five years.
Increase agricultural productivity by providing technical assistance and training, including through agreements between smallholders and large estates. Increase farmers’ access to credit by accelerating land titling.	In 2017 the Ministry of Agrarian Affairs and Spatial Planning had mapped 5.3 million plots of land as part of a Land Certification Programme. By June 2018 2.3 million land certificates had been issued.
D. Enhancing regional development
Work with the sub-national governments to move the regulation of business to best practice.	An online single submission system was launched in 2018; after it is fully implemented it will centralise all licensing procedures of all levels of government.
Experiment with different incentives in special economic zones, including more flexible labour regulation, with a view to extending proven good practices to the whole economy.	No action taken.
Expand assistance to help regions to improve budget planning and implementation capacity. In the interim, make greater use of special allocation funds to prioritise sub-national spending.	Performance-based budgeting has been developed in several provinces such as West Sumatra, West Java, Riau and Yogyakarta in 2017 and Gorontalo in 2018.
Do more to encourage sub-national governments to develop their own sources of revenue, such as by offering matching grants. Modify the transfer formula so that it does not penalise jurisdictions that exploit more fully their own fiscal capacity.	In the 2017 budget the proportion of the general allocation fund (DAU) basic allocation covering personnel costs was reduced.
In the 2018 budget, the proportion of the village funds basic allocation (equal across villages) was reduced and more weight put on poor villages, the size of the area, the population and the construction cost index.
Make explicit villages' service delivery responsibilities, and develop audit mechanisms to oversee their budgets.	No action taken.