Highlights

Indonesia is the second-largest borrower of the International Bank for Reconstruction and Development and receives the third-largest disbursement amount, with the World Bank accounting for 60 percent of Indonesia’s multilateral public debt and nearly 40 percent of its external debt.

The World Bank Group and Indonesia have a close partnership characterized by Indonesia hosting the Bank Group’s largest country office and individuals often transitioning between prominent positions in the government and World Bank.

Bilateral cofinancing accounted for 38 percent of the World Bank’s lending operations, while trust funds accounted for 84 percent of advisory services and analytics in Indonesia. The Bank Group strategically used trust fund–supported advisory services and analytics to support operations and sustain engagement at times of limited lending.

World Bank–supported operations in Indonesia frequently emerged as best practices, particularly in health and public financial management, and were shared with other countries through South-South forums.

Bank Group strategies relevantly adapted to government priorities during the evaluation period and helped Indonesia thrive despite multiple crises and institutional capacity challenges. Specifically, the World Bank used multiple lending instruments, particularly Program-for-Results, to tackle multisectoral issues.

The World Bank Group’s Unique Partnership with Indonesia

The Bank Group’s program in Indonesia is one of its largest globally. Indonesia is the International Bank for Reconstruction and Development’s second-biggest borrower by outstanding debt, totaling $21 billion at the end of 2022, which is second to India. It received the third-largest disbursement amount from the World Bank between 2010 and 2022, about $9.3 billion, which is third after Nigeria and Ethiopia (figure 2.1). The country does not receive International Development Association support. The Bank Group is Indonesia’s largest creditor: as of 2022, it accounted for 39 percent of Indonesia’s outstanding external debt and about 60 percent of its outstanding public debt to multilateral creditors (figure 2.2).

Figure 2.1. World Bank Disbursements by Country, 2010–22

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Figure 2.1. World Bank Disbursements by Country, 2010–22

Source: Independent Evaluation Group.

Figure 2.2. Indonesia’s Outstanding External Debt by Creditor, 2013–23

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Figure 2.2. Indonesia’s Outstanding External Debt by Creditor, 2013–23

Source: World Bank Group Finances database.

The World Bank has a special partnership with the government. There is a trend of individuals transitioning between prominent roles in the Indonesian government and senior management positions at the World Bank, highlighting a unique and close dynamic between the two institutions. Most notably, Indonesia’s former finance minister served in that role from 2005 to 2010 before becoming the World Bank’s managing director and chief operating officer from 2010 to 2016, only to return as Indonesia’s finance minister from 2016 to 2025. During her second stint as finance minister, she personally initiated and oversaw public finance reforms for which the government requested extensive World Bank financing and technical support. Indonesia also hosts the largest Bank Group country office in the world, with more than 500 staff and consultants expected to be stationed there by 2025, further underscoring this special partnership.

Relevance and Adaptation of the World Bank Group Portfolio

The World Bank and IFC had a total commitment of nearly $25 billion to Indonesia over the evaluation period. During that time, the World Bank approved 108 financing operations for Indonesia, with a total commitment of $21 billion. The World Bank delivered 298 ASA projects. IFC’s total net commitments amounted to more than $3.5 billion, and the number of IFC advisory services projects totaled 27. The Multilateral Investment Guarantee Agency portfolio was relatively smaller over the evaluation period (see table B.1).

The World Bank ramped up its lending between 2005 and 2009 in response to the 2004 tsunami by resuming development policy financing. Annual World Bank lending reached a new high in 2009 to mitigate impacts from the 2008 global financial crisis and subsequently decreased, in line with the government’s efforts to reduce external financial assistance (figure 2.3). At the beginning of the evaluation period, in FY13, the World Bank had about 80 ongoing projects amounting to $7.5 billion. The portfolio was dominated by investment project financing (IPF), with more than half focused on infrastructure and urban development, but it also included $2 billion in development policy loans (DPLs) to address ongoing volatility in financial markets in FY13.

Figure 2.3. World Bank Financing to Indonesia by Instrument, FY00–24

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Figure 2.3. World Bank Financing to Indonesia by Instrument, FY00–24

Source: Independent Evaluation Group.

Note: DPF = development policy financing; IPF = investment project financing; PforR = Program-for-Results.

In the early part of the evaluation period, Bank Group engagement focused on relevant challenges associated with weak institutions. The FY13–15 CPS centered on institution building. This focus was on recognition of the FY09–12 CPS, which stated that weak institutions, not the lack of financial resources, were the main constraint to achieving development outcomes in Indonesia (World Bank 2009). Correspondingly, the Bank Group’s support during FY13–15 focused on building public institutions so they could more effectively implement and deliver programs for economic growth and inclusion. This support included a sharp increase in development policy financing to bolster institutional reforms in PFM, poverty reduction policies, and the investment climate.

The World Bank expanded financing during the FY16–20 CPS period to emphasize support to infrastructure and fiscal resilience. This expansion involved increasing financing from $3.9 billion in FY13–15 to $8.8 billion in FY16–20, ramping up policy-oriented support to increase DRM and expenditure efficiency, and helping modernize core energy infrastructure and maritime logistics to support climate-smart connectivity. These efforts were meant to improve the population’s inclusive access to economic opportunities and income-enhancing assets. At the same time, the World Bank scaled up its knowledge engagement during this time, laying the groundwork for a more adaptive and inclusive policy environment, complemented by continued support for institutional strengthening and capacity building (World Bank 2015c; appendix B).

The Bank Group’s engagement from FY16 to FY20 was flexible in responding to shocks. The 2018 Central Sulawesi earthquake led to a notable increase in FY18 lending. Similarly, in FY20, the World Bank rapidly mobilized financing to aid human development during the government’s initial pandemic response, particularly in health and social protection. During the FY16–20 period, the World Bank also began using Program-for-Results (PforR) projects to help Indonesia’s delivery systems withstand shocks and respond flexibly to future needs in health and social protection. The FY21–25 CPF continued this support for shocks by prioritizing the country’s recovery from COVID-19 impacts and the resilience of health, economic, and social protection systems (figure 2.4). In FY21, the Multilateral Investment Guarantee Agency issued guarantees under its COVID-19 response program to cover loans for the working capital needs of the electricity utility company PT Perusahaan Listrik Negara in support of renewable energy projects.

Figure 2.4. Evolution of World Bank Commitments Before and During the Evaluation Period, FY09–23

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Figure 2.4. Evolution of World Bank Commitments Before and During the Evaluation Period, FY09–23

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Source: Independent Evaluation Group.

Note: CPF = Country Partnership Framework; CPS = Country Partnership Strategy; RPJMN = National Medium-Term Development Plan.

IFC pivoted from a focus on financing micro, small, and medium enterprises (MSMEs) to sustainable finance because of systemic market challenges. At the beginning of the period, IFC concentrated mainly on MSMEs’ financing activities through midsize banks. These activities and projects aligned with Indonesia’s financial deepening goals. However, systemic challenges from the dominance of state-owned financial institutions and market distortions restricted IFC’s ability to scale and diversify its support. In response, IFC strategically pivoted toward a focus on sustainable finance—a space with stronger market incentives and fewer public-sector distortions. IFC’s sustainable finance work benefited from stronger synergies with World Bank policy operations, enhancing its influence on regulatory reforms. IFC’s engagement also expanded to target increased private sector participation in infrastructure, a stronger competition policy, state-owned enterprise (SOE) reforms, and capital market development (figure 2.5). IFC further supported human capital improvement through investments in education and health care while advocating for more flexible policies on foreign investment and high-skilled labor.

Figure 2.5. International Finance Corporation Net Commitments by Fiscal year, FY09–24

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Figure 2.5. International Finance Corporation Net Commitments by Fiscal year, FY09–24

Source: International Finance Corporation investment project database.

Note: CPF = Country Partnership Framework; CPS = Country Partnership Strategy.

The Prominent Role of Trust Funds

Trust funds and other bilateral cofinancing accounted for a larger portion of the World Bank’s portfolio in Indonesia than in other country programs. Thirty-eight of the World Bank’s more than 100 approved lending operations in Indonesia used cofinancing. This represented $479 million of the World Bank’s $21 billion operational portfolio in Indonesia during the evaluation period. An even larger proportion of the World Bank’s knowledge work in Indonesia was funded by trust funds, representing 84 percent of the nearly 300 ASA produced over the evaluation period, totaling $245 million. Table 2.1 provides the top beneficiaries of World Bank–executed trust fund disbursements between FY19 and FY23, with Indonesia ranking first.

Sources: BPS-Statistics Indonesia 2022a; IMF 2024c; MUC Consulting 2022; Munazat 2025.

Note: IBRD = International Bank for Reconstruction and Development; IDA = International Development Association.

Trust funds allow the World Bank to convene development partners and support many development needs in Indonesia. According to the most recent FY21–25 CPF, eight development partners—Australia, Belgium, Canada, Denmark, the European Union, Norway, Switzerland, and the United States—provided $57 million in World Bank–administered trust funds to Indonesia between FY21 and FY25. These resources supported a broad range of issues, including tourism, infrastructure, urbanization, human capital, sustainable landscapes, economic governance, SOE reforms, and ocean marine debris and coastal resource management. In 2020, Australia initiated a single-donor $20 million programmatic trust fund with the World Bank to accelerate human capital development, improve economic governance and mobility, enhance infrastructure, and increase gender equality.

Trust funds supported the World Bank’s program delivery across sectors and helped expand engagement through ASA. Trust fund commitments dropped sharply in FY13 when major postdisaster funds closed. These trust funds included the Aceh and Nias multidonor trust funds (MDTFs) and the Java Reconstruction Fund, which together mobilized nearly $800 million. Since then, trust fund commitments steadily increased between the FY13–15 strategy period and the FY21–25 strategy period. The largest share of trust fund financing in Indonesia was directed to the Infrastructure Practice Group (47 percent), followed by Sustainable Development (29 percent), and Human Development (9 percent). Overall, trust fund priorities aligned with all CPS and CPF objectives over the evaluation period. The majority of ASA delivered during the evaluation period (135 out of 298) were completed during the FY16–20 CPF period. The World Bank financed 84 percent of ASA with trust funds and collaborated with development partners to share knowledge and build capacity.1

The Bank Group strategically used trust fund–supported ASA to sustain its presence in sectoral reform discussions—even in periods of limited or no lending. ASA often acted as precursors to lending operations or stand-alone vehicles for influencing complex policy reforms, which suggests that the Bank Group strategically used knowledge to lay the groundwork for investments. The PFM agenda exemplifies this approach, as 40 distinct ASA initiatives, totaling $50 million, informed reform priorities. The PFM MDTF provided an additional $60 million for targeted analytics and capacity building. Similarly, $47 million in trust funds supported 44 ASA in the human development portfolio, $30 million supported 32 ASA on resilient urban development, and $32 million supported 22 ASA in the financial sector. Trust funds helped maintain Bank Group support and policy dialogue in the health sector in the first half of the evaluation period when the government reduced its borrowing.

Performance of the World Bank Group Portfolio

IEG rated both the FY13–15 CPS and the FY16–20 CPF as moderately satisfactory. This rating was based on its validations of the Completion and Learning Reviews (appendix C). Project-level performance over the evaluation period was strong on the World Bank side, with 85 percent of closed projects rated moderately satisfactory or above—slightly above the World Bank’s regional average of 83 percent. IFC projects, particularly advisory services, underperformed relative to its regional benchmarks. Only 4 out of 14 advisory projects evaluated, or 29 percent, were rated mostly successful or better, well below the IFC East Asia and Pacific average of 51 percent. The reasons for this underperformance included overly ambitious project designs and limited client capacity. IFC investment projects also fell slightly below regional performance, with 9 out of 19 (47 percent) receiving mostly successful or better ratings, compared with 49 percent regionally.