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In 2007, nearly half of all Indonesians were either poor or living just above the national poverty line. Job opportunities continue to grow at a slower rate than the population. The quality of public services still does not fully represent those of a middle income country. Parts of eastern Indonesia remain underdeveloped, while Indonesia as a whole is still scoring low marks in several health and infrastructure indicators.

In overcoming these challenges, Indonesia is not constrained by a lack of financial resources but by a lack of effective procedures and accountability in its institutions. Effective institutions know how to take available resources and turn them into better development outcomes. Effective institutions know how to spend budgets more wisely and build better schools, better health clinics, and better livelihoods.

In meeting these challenges, the World Bank Group’s new CPS for Indonesia will focus on investing in institutions. This approach aims to improve existing government programs, strengthen the institutions involved (both state and non-state), and encourage others to replicate them. All work under this approach would be viewed through an “institutional lens” – meaning all investments, advisory services, and analytical services, will focus on the institutions, sectors, systems and programs that help promote institutional effectiveness.

This approach will see the World Bank Group supporting institutions and systems at both the central and sub-national level, over five core areas of engagement:

• Private sector development
• Infrastructure
• Community development and social protection,
• Education, and
• Environmental sustainability and disaster mitigation.

The focus on institutions comes with the recognition that World Bank Group financing now only represents a small share of Indonesia’s national budget. This small share can only make an impact if it could leverage a much larger share of Indonesia’s own public spending or private investment. The strategy overall can only make a difference if the World Bank Group is flexible – especially in light of the 2009 general elections and 2010 medium-term development plan (RPJM) – and capable of building and maintaining relationships.

Ten years after the Asian financial crisis what is your assessment of where Indonesia is today? What do you see as the major constraints to the country’s moving forward? The World Banks Board of Executive Directors has endorsed the bank’s new partnership for Indonesia, what are the key elements of that strategy? To what extent is the bank’s new partnership strategy helping the country address those challenges? Is community-driven development an important part of Strategy?

The World Bank as "Mitra Indonesia"
Over the next 4 years the World Bank will play the role of "Mitra Indonesia", which in English means "Partner of Indonesia". The term comes from the idea that Indonesia is now more in need of a development partner than financial assistance. The CPS governs the World Bank Group's programs as a partner of Indonesia.