Policy paper

UK–Indonesia development partnership summary, July 2023

Published 17 July 2023

Introduction

The Strategy for International Development (IDS) places development at the heart of the UK’s foreign policy. It sets out a new approach to development, anchored in patient, long-term partnerships tailored to the needs of the countries we work with, built on mutual accountability and transparency. This approach goes beyond aid and brings the combined power of the UK’s global economic, scientific, security and diplomatic strengths to our development partnerships. Our four priorities are to deliver honest, reliable investment, provide women and girls with the freedom they need to succeed, step up our life-saving humanitarian work, and take forward our work on climate change, nature and global health. The Integrated Review Refresh (IR23) reiterates that sustainable development is central to UK foreign policy and sets out how the UK will go further and faster on development to reduce poverty and reinvigorate progress towards the Sustainable Development Goals (SDGs). This Country Development Partnership Summary details how the IDS and IR23 will be put into practice with Indonesia.

Country context

Indonesia is a Lower Middle-Income Country, with over 5% growth, and projected to be a top 5 economy by the 2040s. Although it still has large numbers of poor people it has made huge strides in reducing poverty and driving its own economic and human development and has largely eradicated extreme poverty with just 1.5% of the population living on less than $1.90 per day by 2022.^{[footnote 1]}

The UK will support Indonesia’s development pathway, ^{[footnote 2]} to support Indonesia to achieve its priorities and to ensure that Indonesia’s growth is low carbon, economically sustainable and inclusive as set out in the Sustainable Development Goals. The UK-Indonesia Partnership Roadmap ^{[footnote 3]} reflects the importance both countries place on the partnership and our plans to work together.

The UK’s main areas of focus for development engagement with Indonesia are green growth, human capital development and trade and investment. We judge that these are the sectors with greatest common interest between our 2 nations, as reflected in the Roadmap, and where the UK can also provide strong technical expertise that will be of value to Indonesia. Cross cutting all of this is our goal for Indonesia’s growth to be sustainable and inclusive, reaching all parts of society and supporting Indonesia on a path to lasting economic and human development.

Indonesia is critical to achieving global goals on climate change and biodiversity as one of the world’s largest emitters of greenhouse gases, as well as being relatively vulnerable to the impacts of climate change and weather-related disasters.^{[footnote 4]} Indonesia has pledged to reduce emissions by 43% by 2030, with international support.^{[footnote 5]} Indonesia has also made impressive progress on protecting its forests: since 2016, rates of deforestation have continuously declined, falling in 2020 to 115,000 ha according to official figures – the lowest since records began in 1990.^{[footnote 6]} The Forestry and Other Land-Use (FOLU) sector continues to emit the highest amounts of greenhouse gas (GHG) emissions in the country, but Indonesia has committed to this sector becoming a net carbon sink by 2030, which will require, amongst other things, conservation of natural forests, rehabilitation of some key landscapes such as peatlands and the sustainable management of forest concessions. Meanwhile, according to the World Bank’s Country Climate and Development Report, the energy sector is expected to be the largest contributor to GHG emissions by 2030.^{[footnote 7]} In the energy sector Indonesia continues to rely heavily on coal, with coal capacity currently providing 61% of electricity generation. A Presidential Regulation sets out a 2050 coal power phase out date but there is much work to do for Indonesia to achieve its target of 23% renewable energy by 2025.

Indonesia’s commitments to deliver in the sector are well set out. In October 2022 Lord Goldsmith and Environment and Forestry Minister Siti Nurbaya Bakar signed a Memorandum of Understanding (MoU) on bilateral cooperation under the FOLU Net Sink 2030 target. This will include a new phase of support for sustainable forest management and landscape restoration. Whilst in energy, the Joint Statement announcing the Indonesia Just Energy Transition Partnership (JETP) was made at the G20 Summit in Bali in November 2022. The JETP mobilises $20 billion to support Indonesia’s ambitions to ensure peaking power emissions of no more than 290 megatonnes (MT) by 2030 and a downward trajectory thereafter to reach net zero by 2050, an increase in renewables to at least 34% of power generation by 2030. The UK is providing a $1 billion guarantee for additional World Bank lending to Indonesia in support of the JETP, along with $150 million of investment capital through the Private Infrastructure Development Group (PIDG).

Why and how: the UK’s development offer with Indonesia

Indonesia is an economically and politically important country to the UK both in terms of our deepening engagement in the Indo-Pacific and our interest in seeing a strong and effective Association of Southeast Asian Nations (ASEAN). We have an interest in making sure that Indonesia’s development progress does not slow or reverse, is in line with global commitments including the Paris Agreement and Sustainable Development Goals and withstands the global turbulence affecting many countries’ development indicators, even in the global North.

Our development partnership includes a range of sectors, with a particular focus on low carbon growth, nature, human capital development and sustainable trade and investment. Climate remains the largest element of our Official Development Assistance (ODA) spend, proudly building on a history of engagement since the turn of the century, focused on forestry and timber supply chains. But we also engage extensively elsewhere, including where political, technical and private sector engagement can have greater effect when combined with small amounts of spend.

In trade and investment, the UK is seeking to increase trade and investment flows through a suite of integrated activity including trade policy, trade and investment promotion, competitive financing offers, and investment and development toolkits that will support Indonesia’s ambitious economic growth strategies whilst increasing opportunities for UK business.

In low carbon and climate our focus is to ensure Indonesia’s growth is sustainable, by supporting transition to a 2050 net zero, nature positive, just and inclusive growth pathway, based on full access to clean energy, green infrastructure, net zero technology and environmental sustainability.

In human capital development our ambition is to support the delivery of Indonesia’s own human development priorities in an equitable and inclusive way, through the provision of UK expertise at both institutional and community levels, helping to strengthen Indonesian government, civil society, cultural, education and democratic institutions.

The UK approach will continue to focus on providing technical advisory support on areas where we are seen as having a competitive edge, including in low carbon growth and energy transition, higher education partnerships, skills development expertise, digital access and transformation, and modernisation / expansion of health systems. Small amounts of ODA combined with technical expertise and access to UK institutions and initiatives provides high value impact, helping Indonesia in its work to modernise its public services and increase access for women and marginalised groups. The UK’s targeted support in these areas is helping Indonesia to achieve systemic change, for example with the development of its financial services regulations under the new Financial Services Omnibus Law, including on sustainable finance and green taxonomy. A proportion of our bilateral spend will also support capital asset development. Where this is the case, we will ensure that this development creates systemic impact, through a variety of mechanisms. These include focusing on leveraging additional public and private finance, including nature finance, supporting the development of capital projects in order to demonstrate the possibility of particularly difficult or risky public goods, for example, renewable energy generation in remote areas.

Our engagement on low carbon development will remain one of the flagship themes of UK engagement with Indonesia and will inform the full range of what we do. As well as technical advice to support policy reform, we will help Indonesia to access the quantum of support it needs from commercial partners, investment, innovative climate finance and carbon pricing mechanisms. Building on success in the timber sector (through Forest Law Enforcement, Governance and Trade, FLEGT^{[footnote 8]}), we will work with trade policy colleagues to use a range of other activities on sustainability in supply chains, for example in palm oil, biomass, nickel and other commodities. And as a biodiversity superpower, where there are climate co-benefits, we will support Indonesia’s own efforts to protect its extraordinarily diverse flora and fauna.

We also recognise the important role that effective use of technology plays in an economically developed nation. We will work with Indonesia to identify and address the barriers to digital access, especially for women and marginalised groups, supporting economic and business growth and human development. We will provide technical expertise to support the best use of technology in service delivery, building on the successes we have already had in supporting the digitalisation of health delivery, whilst providing cutting edge knowledge in tackling cyber security issues and ensuring best practice in data management.

Throughout all of this it is crucial that we ensure that the voices and needs of marginalised groups, including people with disabilities and women and girls, are mainstreamed and included. We will ensure that all our investments apply a disability and gender lens to their work, supporting marginalised people to have a say in how development is impacting their community and determining for themselves what that means for them both as a group and individually. Our investments will ensure that marginalised people can influence and access the benefits of change, including challenging stereotypes to take advantage of skills development and opportunities to engage with new and emerging technologies crucial to a successful middle-income economy. We will build on the success of programmes such as the Digital Access Programme which has supported digital literacy training for marginalised groups, building knowledge in topics such as personal data protection, financial literacy and branding and content writing for Macro, Small and Medium size Enterprises, supporting a wide range of marginalised people from diverse backgrounds to improve their digital skills.

Following its successful G20 Presidency, we also want to engage Indonesia as an influential voice in the global development system, for example on reforming the international financial system and in its relationship with the OECD. Building on the ambition of the Bridgetown Initiative and the G20 Capital Adequacy Framework Review (CAFW), we will want to listen, consider, influence and amplify Indonesia’s like-minded aspirations for a bigger, better and fairer international financial system so that the poorest and most climate-vulnerable countries are able to better access finance, including from multilateral development banks and the International Monetary Fund.

Who we work with

We will continue to work with a broad alliance of partners to support Indonesia’s development vision. This will include partners within the Indonesian Government, including key ministries, as well as partners in the development and private sector. We will work closely with multilateral partners to leverage a wider range of development investment and expertise in Indonesia beyond immediate UK development investment. We will also seek ways to bring in the opportunities and tools offered by British Investment Partnerships (BIP). The BIP will bring together a tailored package of finance, technical assistance, and technology transfer. BIP tools that will be used in Indonesia include UK Export Finance to support investment opportunities in mass transit projects, engaging UK Centres of Expertise to bring UK expertise in Green Cities, infrastructure and trade, and supporting development finance portfolio investment through British International Investment and the Private Infrastructure Development Group, focusing on business that delivers positive environmental outcomes.

We will seek partnerships with other countries in sectors of shared interest to Indonesia and the UK on a case-by-case basis, for example as part of the group of International Partners Group (IPG) countries working on the JETP. We will seek opportunities for new partnerships where helpful to our and Indonesia’s aims, including leveraging our new Dialogue Partnership with ASEAN to explore opportunities for regional collaboration to benefit Indonesia.

We will work with the public and private sectors to leverage investment into both trade opportunities and development partnerships, and we will work as a strong friend to Indonesia’s civil society, working with selected NGOs and civil society groups to ensure a wide range of voices and views are heard.

Key programmes

The UK has a well-established portfolio of programme and policy support to deliver on the offer we have set out.

The bilateral development programme has a strong focus on low carbon development, including clean energy transformation and land use management. At a bilateral level the UK’s 3 major programmes in this area are:

• Low Carbon Development Initiative, providing Technical Assistance to the Government of Indonesia to support the development of plans and the testing of innovative solutions that will aid the mainstreaming and delivery of low carbon development in Indonesia
• the Mentari renewable energy partnership, working with the Government of Indonesia to accelerate low carbon energy transition and sustainable economic growth, supporting the JETP and broader COP objectives
• INAFOLU forest and land management programme, supporting increased investment in Indonesia’s natural capital assets (including forests) and strengthening the capacity of Indonesian institutions to direct and manage investment in support of Indonesia’s ambitious goal to make its FOLU sector a net carbon sink by 2030

Beyond our bilateral portfolio, the UK works in partnership with Indonesia through our regional and centrally managed programmes, for example:

• 5 new flagship ASEAN-UK development programmes
• building resilience to climate change through the Climate Action for a Resilient Asia (CARA) programme; providing financing for critical, green infrastructure projects through the ASEAN Catalytic Green Finance Facility (ACGF)
• supporting projects to accelerate transition to low carbon development through the UK Partnering for Accelerated Climate Transitions (UK PACT) programme
• protecting the marine environment whilst helping poor, ocean dependent communities through the Blue Planet Fund

For more information on some of these programmes, see the separate public summary of our overall development approach in Southeast Asia.

The UK will also provide a World Bank guarantee and technical assistance to support the Indonesia Just Energy Transition Partnership (JETP). This country-led partnership will mobilise US$20 billion of public and private investment to help Indonesia pursue an accelerated just energy transition away from fossil fuels and towards renewable sources. This transition will not only deliver enhanced climate action, but will help support economic growth, new skilled jobs, reduced pollution, and a resilient, prosperous future for Indonesians.

Beyond the low carbon and climate sector, the UK will continue to take a targeted approach to areas where we can offer strong UK expertise and experience to the Government of Indonesia in support of human capital development and investment for economic development. This includes in the areas of digital access and cyber security, as well as through the UK’s dedicated and expert funds such as the Darwin Initiative for biodiversity conservation and the Fleming Fund to tackle drug resistance. The UK will also embed the learning outcomes from the 2020 to 2023 Skills for Prosperity programme in Indonesia to support Indonesia in shaping vocational education training policies for the future, including broadening access to skills training for women and girls and students from disadvantaged backgrounds. On the Open Societies agenda, the UK will continue its work with long standing partners to support the strengthening of Indonesian civil society, to ensure that all voices are represented in Indonesia’s ongoing development journey.

Understanding what works and its impact is crucial to ensuring effective delivery of UK government investment. We will build strong evaluation and research development into all our major investments, helping the UK and Indonesia to learn lessons from what works well and what can best be replicated for wider long-term impact.

Financial information

Initial allocations have been set internally to deliver the priorities set out in the International Development Strategy (May 2022) and the Integrated Review Refresh 2023, based on the FCDO’s Spending Review 2021 settlement.

The department’s spending plans for the period 2022-2023 to 2024-2025 have been revisited to ensure the UK government continues to spend around 0.5% of Gross National Income (GNI) on ODA. This was in the context of the significant and unexpected costs incurred to support the people of Ukraine and Afghanistan escape oppression and conflict and find refuge in the UK, and others seeking asylum. The Government provided additional resources of £1 billion in 22-23 and £1.5 billion in 2023 to2024 to help meet these unanticipated costs. The government remains committed to returning ODA spending to 0.7% of GNI when the fiscal situation allows, in line with the approach confirmed by the House of Commons in July 2021.

The Country Development Partnership Plans include the breakdown of programme budgets allocated to individual countries for 2023 to 2024 and 2024 to 2025. These allocations are indicative and subject to revision as, by its nature, the department’s work is dynamic. Programme allocations are continually reviewed to respond to changing global needs, including humanitarian crises, fluctuations in GNI and other ODA allocation decisions.

It should be noted that these figures do not reflect the full range of UK ODA spending in these individual countries as they do not include spend delivered via core contributions to multilateral organisations, or regional programmes delivered by the FCDO’s central departments. Other UK government departments also spend a large amount of ODA overseas. Details of ODA spent by other UK government departments can be found in their annual report and accounts and the Statistics for International Development.

UK government investment in Indonesia is drawn from many different sources and flows through direct bilateral programming as well as from a range of regional and centrally-managed programmes and multilateral agencies to which the UK contributes. Much of this investment from other sources is spread across a range of benefitting countries making it difficult to disaggregate.

FCDO bilateral spending plans for Financial Year 23/24 are set out in these charts:

Figure 1. 2023 to 2023: £12.2 million. Climate, £11.3 million, 93%; global health, £0.6 million, 5%; governance and institutions critical to broader development, £0.3 million, 3%.

Investment that supports the voices and needs of women and girls is crucial to everything the UK does in Indonesia and is mainstreamed into all the programmes captured in the spend charts above. Of ODA spend in Indonesia in 2022 to 2023 100% is marked as being principally or significantly focused on promoting gender equality.

FCDO Official Development Assistance allocation

Allocated ODA budget financial year 2023 to 2024	Indicative ODA budget financial year 2024 to 2025
£12.2 million	£28 million

Supporting information sources:

• UK Embassy Jakarta
• DevTracker
• D-portal
• FCDO evaluation repository

1. Pathways towards economic security Indonesia poverty assessment, World Bank 2023 (PDF, 10.39MB) ↩

2. Indonesia’s development priorities are set out in its Vision 2045 long term development plan. That puts human development as first priority, followed by infrastructure development, regulatory simplification (focused on MSMEs), bureaucratic simplification and economic transformation. ↩

3. UK-Indonesia Partnership Roadmap 2022 to 2024 ↩

4. ND-GAIN index score ↩

5. https://climatepromise.undp.org/what-we-do/where-we-work/indonesia ↩

6. Ministry of Environment and Forestry, Republic of Indonesia. ‘Laju Deforestasi Indonesia Turun 75.03%’; Doi: Laju Deforestasi Indonesia Turun 75,03 % - Kementerian LHK (menlhk.go.id) ↩

7. Indonesia Country Climate and Development Report (worldbank.org) ↩

8. Forest Law Enforcement, Governance and Trade. A licensing system which confirms a country meets timber sustainability requirements for importing timber products to the UK and EU ↩