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Analysis of growth in Indonesia

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Mark Henstridge

Maham Farhat, Maja Jakobsen, Mark Henstridge, Sourovi De

We were contracted by the UK Climate Change Unit (UKCCU), based in Jakarta, to undertake a study of the sustainability of Indonesia’s growth. The objective of the study was to develop the UKCCU’s knowledge base on the sustainability of Indonesia’s growth to inform its future approach to supporting climate change in Indonesia, and to increase the quality of its dialogue with Indonesian partners. To investigate the sustainability of Indonesia’s growth, we produced four background papers analysing:

  • the drivers of recent economic growth;
  • the impact of the commodity price boom;
  • the environmental sustainability of growth; and
  • the political economy of deforestation.

With the foundation in the four background papers, the team produced an overview paper – entitled 'Growth in Indonesia: is it sustainable?' This paper combined the findings from the background papers using the World Bank’s Net Adjusted Savings Framework to assess the economic and environmental sustainability of Indonesia’s growth.

The paper aimed to make the analytical findings more policy-focused and thereby accessible to non-experts in the field. All four background papers were based on a desk-based review of existing literature and data combined with consultations with experts during field visits to Jakarta. For each background paper, the team applied different analytical approaches including macroeconomic analysis, firm level data analysis, adjusted net savings analysis, and political economy analysis.

The findings of the study were presented to the Ministry of Finance and a broader audience of donor agencies and international stakeholders in Jakarta at two separate workshops. The study helped UKCCU to identify some of the key challenges to Indonesian growth and development from policy, economic, and environmental perspectives.