Indonesia

Subnational governments in Asia and the Pacific are key providers of the public services and infrastructure required to achieve the Sustainable Development Goals. Given this role, it is essential that policymakers and development partners understand and support the effective functioning of multi-level governance structures and subnational government finances across the region. This joint OECD-ADB report provides a comprehensive overview of subnational governments across Asia and the Pacific. It covers over 467,000 subnational governments from 26 countries, which represent 53% of the world’s population and 40% of global GDP. On average in 2020, subnational governments in the region accounted for 29% of total public expenditure (8.8% of GDP), 35% of total public revenue (8.5% of GDP) and 38% of public investment (2% of GDP). Harnessing unique data from the 3rd edition of the OECD-UCLG World Observatory on Subnational Government Finance and Investment, the analysis highlights how decentralisation and territorial reforms have reconfigured the structures and finances of subnational governments in the region. It covers a range of topics including fiscal rules, financial management capacity, priority-based budgeting, asset management and the use of public-private partnerships.

The COVID-19 crisis has had a profound impact on SME access to finance. In particular, the sudden drop in revenues created acute liquidity shortages, threatening the survival of many viable businesses. The report documents an increase in demand for bank lending in the first half of 2020, and a steady supply of credit thanks to government interventions. On the other hand, other sources of finance declined, in particular early-stage equity. This paper, a special edition of Financing SMEs and Entrepreneurs, focuses on the impacts of COVID-19 on SME access to finance, along with government policy responses. It reveals that the pre-crisis financing environment was broadly favourable for SMEs and entrepreneurs, who benefited from low interest rates, loose credit standards and an increasingly diverse offer of financing instruments. It documents the unprecedented scope and scale of the policy responses undertaken by governments world-wide, and details their key characteristics, and outlines the principal issues and policy challenges for the next phases of the pandemic, such as the over-indebtedness of SMEs and the need to continue to foster a diverse range of financing instruments for SMEs.

This report comes at a time when policy makers are challenged by the COVID-19 crisis that is generating a profound reflection on economic and social well-being. Before COVID-19 hit, Indonesia had experienced remarkable economic growth, making substantial progress in poverty reduction and gains in employment. However, there are large differences in outcomes across Indonesian provinces, which often reflect the quality of local infrastructure, services, education, and jobs. This joint Asian Development Bank (ADB) and Organisation for Economic Co-operation and Development (OECD) study sheds light on challenges and opportunities to promote employment and skills outcomes at the local level in Indonesia. The analysis presented in this OECD/ADB report shows the importance of strengthening local institutions managing and delivering employment and skills policies.

The design of intergovernmental fiscal relations can help to ensure that tax and spending powers are assigned in a way to promote sustainable and inclusive economic growth. Decentralisation can enable sub-central governments to provide better public services for households and firms, while it can also make intergovernmental frameworks more complex, harming equity. The challenges of fiscal federalism are multi-faceted and involve difficult trade-offs. This synthesis paper consolidates much of the OECD’s work on fiscal federalism over the past 15 years, with a particular focus on OECD Economic Surveys. The paper identifies a range of good practices on the design of country policies and institutions related strengthening fiscal capacity delineating responsibilities across evels of government and improving intergovernmental co-ordination.

Asian cities are particularly vulnerable to risks associated with natural disasters. While they are exposed to various types of natural hazards, flooding and other water-related disasters pose particularly significant risks and undermine long-term economic growth, especially in coastal cities. Managing such natural disaster risks is an essential component of urban policies in fast-growing Southeast Asian cities, especially as the impacts of climate change worsen. In addition to providing a framework for assessing disaster risk management policies in cities, this report also presents the results of assessment and locally tailored policy recommendations in five cities of different institutional, geographic, socio-economic and environmental contexts in Southeast Asia. They include Bandung (Indonesia), Bangkok (Thailand), Cebu (Philippines), Hai Phong (Viet Nam) and Iskandar (Malaysia). The study highlights that Southeast Asian cities are largely underprepared for natural disaster risks. Through an assessment of disaster risk management (DRM) policies at national and subnational levels, the study aims to enhance urban resilience by: i) identifying policy challenges related to DRM ; ii) assessing the impacts of current DRM policy practices; and iii) proposing more efficient and effective policy options to enhance urban resilience.

SMEs play an important role for economic growth and social inclusion in Indonesia. Based on data from the Ministry of Co-operatives and SMEs, Indonesian SMEs account for nearly 97% of domestic employment and for 56% of total business investment. Indonesia has a Micro, Small and Medium Enterprise (MSME) Law and a specific ministry dedicated to co-operatives and SMEs. The wealth of public programmes for SMEs could be streamlined, and more could be done to support innovative companies able to generate productive jobs and participate in international markets. The development and implementation of an SME strategy would be instrumental to improve the overall coherence of national policy measures, objectives and measurable targets. The review of SME and entrepreneurship policy of Indonesia is part of a peer-reviewed series, by the OECD Working Party on SMEs and Entrepreneurship, which aims to improve the design, implementation and effectiveness of national SME and entrepreneurship policies.

Bandung Metropolitan Area (BMA) is home to 8.6 million people and is Indonesia’s second-largest urban agglomeration. Rapid growth has created a number of challenges for the city, including traffic congestion, air pollution, municipal solid waste and water access and management. The BMA also faces several acute disaster risks primarily related to flooding and seismic activity. The area will need to address these challenges in order to continue sustainable development and to benefit from its environmental assets. Urban green growth policies encourage economic development while reducing either its negative environmental or the consumption of natural resources and environmental assets, including water, energy and undeveloped land.  This report, part of the OECD Urban Green Growth in Dynamic Asia project, explores policies, practices and governance systems to promote green growth in Bandung, Indonesia, and provides recommendations for enhancing Bandung’s green growth potential.