Effective economic institutions and infrastructure in Indonesia


Our economic governance investments support Indonesia to boost inclusive growth and to achieve mutual benefit from international trade and investment. We provide technical assistance, including through government-to-government partnerships, which focus on Indonesia’s priority economic reforms in areas such as financial sector supervision, budgeting, trade and competition, tax policy and administration and macroeconomic management. We are also working with Indonesia to tackle the underlying disincentives to investment in infrastructure, providing input on regulations and project planning, along with targeted technical assistance to make sure that Indonesia gets good results from its own spend on infrastructure development.

As nearly two thirds of Indonesia’s poor live in rural areas, our aid program continues to focus on development of the agricultural sector. We are encouraging inclusive economic growth by attempting to influence how agricultural markets work for the poor, improving food security, raising agricultural productivity, and helping to boost farmer’s incomes and employment by addressing constraints such as access to loans.

Related initiatives

Palembang City Sewerage Project (PCSP)

Bilateral grant: $45 million, 2017-2022

The Palembang City Sewerage Project will build a wastewater treatment plant in Palembang City, South Sumatra Province, Indonesia. It is being co‑financed by the Australian Government and the Government of Indonesia (Central, Provincial and Local Government funds). This project in Palembang is one component of the Asian Development Bank’s Metropolitan Sanitation Management Investment Project (MSMIP), with the total project value is USD168.83 million. The other cities supported by MSMIP are: Makassar, Jambi and Pekanbaru.

The Palembang project has three components: (i) a wastewater treatment plant; (ii) a wastewater transmission line fed by a wastewater pumping station; and (iii) a wastewater collection system. Upon completion, the project is expected to provide 12,000 property connections (connecting houses/businesses to the sewerage network) and provide desludging of septic tanks for an additional 50,000 households (250,000 people).

Additional information regarding the MSMIP and PCSP can be found on the Asian Development Bank website.

Infographic: PCSP partnership - healthy people increase productivity

Infographic showing what the project will do, the benefits, and how the project partnership works. Link to full description below.

View larger image [JPG].

View text version of infographic.

Related documents*

Name of document Year published Type
PCSP design document 2017 Design document

Indonesia Australia Infrastructure Partnership (KIAT)

$300 million (up to), 2016-2026

Through KIAT we support development of high quality infrastructure projects, a reduction in regulatory constraints that impede infrastructure investment, and a greater capacity of government bodies responsible for infrastructure delivery. In doing so we support sustainable and inclusive economic growth through improved access to infrastructure.

KIAT commenced implementation in May 2017 and replaces the Indonesia Infrastructure Initiative (IndII) facility that ended in June 2017.

The Water and Sanitation Grant Program and the Provincial Road Improvement and Maintenance Program are also implemented under KIAT.

Related documents*

Name of document Year published Type
Indonesia Australia Infrastructure Partnership (KIAT) facility design document 2017 Design

Water and Sanitation Hibah Phase 2

$ 119.6 million, 2009-2019

Through the Water and Sanitation Grants Program we aim to increase water and sewerage connections across Indonesia by working with local governments to boost investment in water and sanitation infrastructure. We use an innovative approach where local governments are reimbursed up to 45 per cent of the connection costs following verification that each new connection has functioned for at least three months. The program is being implemented with 115 local governments to deliver 330,000 new water connections (38,000 of which are USAID funded) and 9,000 sewerage connections. This will benefit 1.5 million people from predominantly low-income families. Women, people with disabilities and the elderly are significant beneficiaries, with many experiencing improved health and better opportunities to engage in economic activity, due to the time saved from no longer having to travel to fetch water.

Infographic: How The Water Hibah Works

Infographic. See alternative text below.

View larger image [PNG 335 KB].

View text version of infographic.

Related documents*

Name of document Year published Type
Indonesia Water and Sanitation Initiative – Phase 1 Concept Note 2009 Concept note
Indonesia Development Cooperation Report 2010 Report
Indonesia Urban Household Water Supply and Sanitation Program – Direct Funding Agreement 2010 Agreement
Indonesia Urban Household Water Supply and Sanitation Program – Agreement with USAID 2011 Agreement
Indonesia Water and Sanitation Initiative – Phase 2 Concept Note 2011 Concept note
Indonesia Water and Sanitation Initiative – Independent Evaluation and Final Report 2011 Independent evaluation
Indonesia Water and Sanitation Initiative – Independent Evaluation and Final Report: Management Response 2012 Evaluation management response

Water and Sanitation for Low Income Communities Project (PAMSIMAS) 2 & 3

$69.9 million, 2013-2021

PAMSIMAS is the Indonesian Government's national program to deliver water, sanitation and improved hygiene to rural and peri-urban areas. Through PAMSIMAS we work with communities to plan, finance, manage and maintain their water supply and sanitation systems and improve hygiene behaviour. As at August 2016, our joint efforts with the Indonesian Government had enabled about 9 million people to access improved water facilities (such as piped water into houses and public taps), and more than 8 million people to access improved sanitation facilities (such as flush toilets or improved pit latrines). PAMSIMAS is delivered by the Indonesian Ministry of Public Works and Housing, and is co-financed by Australia and the World Bank.

PAMSIMAS 3 is the newest phase of the program which sees the Indonesian Government attempt to achieve universal access to water and sanitation in rural areas, covering 27,000 villages in 360 districts and 33 provinces.

Related documents*

Name of document Year published Type
Design Summary and Implementation Document – Water and Sanitation Initiative – Indonesia 2009 Design
Third Water Supply and Sanitation for Low income Communities Project Mid-Term Review Aid Memoir 2010 Review
PAMSIMAS Anti-Corruption Action Plan 2012 Plan
Third Water and Sanitation for Low Income Communities Project and the Water Supply and Sanitation Policy Formulation And Action Planning Facility – Independent Review 2013 Independent evaluation
Third Water and Sanitation for Low Income Communities Project and the Water Supply and Sanitation Policy Formulation and Action Planning Facility – Independent Review: Management Response 2013 Evaluation management response

Related links

The Australia Indonesia Infrastructure Grant for Municipal Sanitation (sAIIG)

$40 million, 2012-2019

The Australia Indonesia Infrastructure Grant for Municipal Sanitation is provided to approximately 40 selected local governments to implement sanitation infrastructure, such as simplified sewerage treatment systems, connections to existing sewerage networks, and solid waste transfer stations. sAIIG has been designed to stimulate local government investment in sanitation infrastructure and to provide incentives for governance reforms that will improve the delivery of sanitation services.

Name of document Year published Type
sAIIG design document 2011 Design
sAIIG concept note 2011 Concept note

Provincial Road Improvement and Maintenance (PRIM)

$37.7 million, 2014-2021

The Provincial Road Improvement and Maintenance Pilot Program is an output-based grant program through which we provide incentives for local governments to implement road maintenance and rehabilitation works. It aims to improve the way local governments plan, budget and implement their investments in road maintenance on a sustainable basis. Through PRIM we are working to broaden the use of the hibah (grant) mechanism that was successfully piloted in the water and sanitation sector.

Related documents*

Name of document Year published Type
PRIM program design document 2014 Design

Multilateral Development Bank Infrastructure Assistance Program

$60.5 million, 2013-2019

Through the Multilateral Development Bank Infrastructure Assistance Program we work with the World Bank, the Asian Development Bank and the Indonesian Government to support a range of activities, including project preparation support and implementation, feasibility studies, engineering designs and environmental impact assessments. Through the program we have also supported the development of a Public Private Partnerships Centre in the Indonesian Ministry of Finance.

Related links

Australia-Indonesia Partnership for Economic Development (PROSPERA)

$145 million, 2018- 2023 (with option to extend for 3 years)

Australia's new economic governance program –PROSPERA- is scheduled to commence on 1 March. Two separate programs AIPEG and GPFhave been integrated in this program. PROSPERA's goal is to support the Indonesian Government to develop more effective institutions and policies that contribute to strong, sustainable and inclusive economic growth and improved public sector performance. PROSPERA is a continuation of economic governance programs dating back to the aftermath of the 1998 Asian Financial Crisis. APS agencies and contracted advisers deliver PROSPERA activities.

Australia Indonesia Partnership for Rural Economic Development Program (AIP-Rural)

$112 million, 2013-2018

Through AIP-Rural we aim to increase inclusive economic growth in five provinces in eastern Indonesia, by influencing how agricultural markets work for the poor. We have designed the program to help reduce the number of Indonesians living in poverty, address constraints to rural income growth and improve agricultural productivity. We do this by facilitating private sector-led investment in better agricultural practices, while also supporting aid for trade and women's economic empowerment. Private sector partners have worked on more than 50 activities with the program since 2013, and we aim to increase the incomes of 300,000 smallholder farm households by 30 per cent by 2018.

Related documents*

Name of document Year published Type
Promoting Rural Incomes through Strengthening Markets in Agriculture (PRISMA) Summary Design 2013 Design summary
Tertiary Irrigation Technical Assistance (TIRTA) Design 2014 Design
Applied Research and Innovation Systems in Agriculture Design Document 2014 Design
Strengthening Agricultural Finance in Rural Areas Design Document 2015 Design
Mid Term Review and Management Response 2016 Independent evaluation and management response

Related links

Indonesia-Australia Partnership on Food Security in the Red Meat and Cattle Sector

$50 million (with an additional $10 million in non-Official Development Assistance funding from the Department of Agriculture), 2013-2024

Through the Indonesia-Australia Partnership on Food Security in the Red Meat and Cattle Sector we aim to strengthen long-term economic relations between Indonesia and Australia. This partnership focuses on developing economic opportunities along the cattle and beef sector supply chain in order to support Indonesia's food security and to promote closer ties in the beef and cattle sector between the two countries. The Partnership comprises senior government officials and industry representatives from Indonesia and Australia, and provides advice on areas for development in the sector. Through the partnership we are exchanging skills in beef processing, cattle production and husbandry, and agricultural policy. Last year we launched the Indonesia Australia Commercial Cattle Breeding Program.

Related documents*

Name of document Year published Type
Indonesia-Australia Partnership on Food Security - Communique 2014 Communique
Indonesia Cattle Breeding Program Investment Design 2015 Design

Indonesia-Australia Partnership for Environmental Governance

$10 million, 2017-2019

The 2015 forest and land fires in Indonesia caused an economic loss of approximately USD16 billion (approximately AUD20 billion) and discharged over one billion tons of CO2 into the atmosphere. Forest and land fires are an annual crisis in Indonesia and a significant contributor to global greenhouse gas emissions. To support Indonesia’s efforts to prevent the recurrence of fires and to reduce emissions, we initiated an environmental governance program as part of Australia’s Indo-Pacific Land Action Package (Indonesia-Australia Partnership for Environmental Governance, AUD10 million; 2017-2019) in 2017. This responds to Indonesia’s renewed interest and involvement in addressing forest fires and climate change.

Through technical experts from Government of Australia and multilateral agencies, we partner with the Indonesia Government to promote sustainable land management practices, and strengthen governance and law enforcement.

* The Department of Foreign Affairs and Trade (DFAT) is committed to high standards of transparency and accountability in the management of the Australian aid program through publishing information on our website, including policies, plans, results, evaluations and research. Our practice is to publish documents after the partner government and any other partners directly involved in the delivery of the initiative have been consulted. Not all material published on this site is created by the Australian aid program and therefore not all documents reflect our views. In limited circumstances some information may be withheld for reasons including privacy and commercial sensitivity.

Last Updated: 1 March 2018