Support for Investment and Trade Reforms to Improve Indonesia’s Competitiveness and Aid the Economic Recovery

Start & End Date: 2021-Ongoing

Country/Countries: Indonesia

Multilateral Institution(s) Involved: World Bank

High barriers to investment and trade have limited Indonesia’s ability to attract export-oriented foreign direct investment, reduced its integration into the global economy, and increased the cost of food in the country. These limitations also have slowed the growth of manufacturing and non-commodity sectors. The lion’s share of jobs in the past decades have been created in the commodities and low-productivity service sectors, which often pay below middle-class wages.

A US$ 800 million loan is provided to support reforms of Indonesia’s investment and trade policies and to help accelerate the country’s economic recovery and transformation. The Development Policy Operation (DPO) is structured around two pillars. The first aims to accelerate investment by opening more sectors to private investment, particularly foreign direct investment, bringing more high-skilled professionals to the labor market; and stimulating private investment in renewable energy. The second supports reform to trade policy to boost competitiveness and the economic recovery. The objective is to increase access to and affordability of basic food commodities and raw materials; as well as to facilitate access to manufacturing inputs. The increased investments expected to be triggered by the reforms will however also need careful environmental management. The World Bank will work together with other development partners to assist the government to reinforce environmental management efforts across all sectors.

The reforms have the potential to support an economic transformation away from commodities and towards higher value-added sectors. This could provide a much-needed boost to the post-pandemic economic recovery