Indonesia’s economic resurgence over the past two decades was made possible by a deep and comprehensive reform agenda. At the start of the 2000s, Indonesia was in the grips of social, political, and economic shocks stemming from the Asian financial crisis. Indonesia responded with major reforms prioritizing financial stability, fiscal discipline, and economic inclusion. On the back of those reforms, Indonesia has achieved robust growth and poverty reduction over the past two decades.

The World Bank effectively supported Indonesia in several critical reforms through financing, knowledge, and partnerships. The World Bank helped strengthen fiscal controls by improving predictability, transparency, and budget execution reporting. The World Bank’s technical assistance supported important energy subsidy reforms and social assistance program improvements. The World Bank’s synergistic use of financing instruments helped reduce the prevalence of stunting and improve access to health care services. The World Bank also reinforced financial stability in the wake of successive financial crises by helping establish robust regulatory institutions and advancing reforms in sustainable finance, largely through IFC advisory services. The World Bank supported resilient urbanization by helping improve infrastructure and access to housing, enforce resilience standards in postdisaster reconstruction, and improve flood resilience through slum upgrading programs.

The World Bank’s effective engagement was enabled by strong partnerships, adaptive strategies, technical assistance, and trust fund–supported analytics. During the evaluation period, the former finance minister personally initiated and oversaw public finance reforms, while the Ministry of Finance actively sought World Bank financing and technical assistance to support those reforms. The former finance minister’s prior role as a World Bank managing director gave her a deep understanding of the World Bank’s offerings, enabling the government to make targeted requests that drove several effective approaches. Moreover, the Bank Group’s strategies adapted to the government’s changing priorities over the evaluation period by shifting support from recovery to resilience, thereby remaining highly relevant. The World Bank’s ASA provided important support to this engagement, made possible through collaboration with development partners and the availability of large-scale, continuous trust fund resources. As a result, the World Bank was able to leverage $75 million in trust funds to support its operations and technical assistance to the Ministry of Finance.

However, the Bank Group was less successful in advancing reforms when confronted with political, institutional, or market barriers. The World Bank’s support for tax reforms stalled during times when the reforms were deemed too politically sensitive. Meanwhile, the World Bank had limited engagement in education due to a preference of the ministry to not borrow from multilaterals. Its progress on financial deepening and efficiency was constrained by the dominant role of state-owned enterprises in the financial sector market, which limited competition and raised political resistance to structural change—especially in areas such as banking competition and capital market diversification. Finally, the World Bank’s overreliance on nonprogrammatic, self-standing investment financing in urban resilience hindered its ability to address critically needed policy-level changes such as tariffs or purchasing power parity incentives or to bring about institutional changes such as with regard to local government capacity.

Continued reforms are needed to realize Indonesia’s vision of becoming a high-income nation by 2045. Reaching that goal would involve transitioning from an agriculture- and commodity-based economy to an advanced industrial and service-based nation. This transition will require innovation, advanced technology, and additional human capital, as well as major reforms to create durable institutions and enabling conditions for productive investments and job growth. The continued expansion of public service delivery to meet the demands of a growing middle class will ensure that future growth is inclusive and sustainable.

IEG offers the following lessons based on this Country Program Evaluation’s evidence and analysis:

1. The Bank Group sustained knowledge engagements and built institutions based on a long-term partnership, which was facilitated by substantial trust funds. The Bank Group’s ability to support Indonesia’s extensive and complex reform agenda was made possible by continual technical assistance, diagnostics, and analysis. These efforts strengthened the government’s institutional capacity and enhanced the influence and effectiveness of the Bank Group’s financial support. The availability of expansive and flexible trust funds helped sustain these engagements.
2. The Bank Group’s strong alignment with government priorities ensured enhanced program effectiveness and impact of reforms. The Bank Group was most effective in Indonesia in sectors where it could build strong institutional relations and align with the priorities of the country’s ministries. Regular communication and a swift adaptation to reform openings in areas such as PFM and nutrition helped ensure effective implementation and sustained reforms.
3. The Bank Group’s complementary multisectoral lending created the right incentives for implementing agencies and different levels of government. The Bank Group’s complementary use of development policy lending, results-based lending, and IPF helped address structural challenges at different levels of government. It was especially effective in meeting the complex needs of institution building in PFM or for multisectoral challenges, such as addressing malnutrition. In urbanization, the World Bank’s overreliance on investment financing instruments limited multisectoral collaboration and local government capacity building. Support to critical policy reforms, such as housing subsidy reforms and incentivizing public-private partnerships, proved insufficient.