OECD-Indonesia Launch Event
• 2017-18 Joint Programme of Work
• 2016 Economic Survey of Indonesia
• 2016 Open Government Review
Speech by Angel Gurría,
Jakarta, Indonesia, 24 October 2016
(As prepared for delivery)
Dear Sri Mulyani, Bambang, Distinguished Guests, Ladies and Gentlemen:
Selamat pagi! [Good morning!]
Thank you for your warm welcome. I am delighted to be back in Jakarta! The OECD’s relationship with Indonesia continues to flourish, reflected in the plethora of OECD projects and studies I am launching today: the 2017-18 OECD‑Indonesia Joint Programme of Work; our latest Economic Survey of Indonesia; and our first Open Government Review of Indonesia.
The co-operation between Indonesia and the OECD runs deep. Indonesia’s experience, perspectives, and practices are highly valued by OECD Members. As a Key Partner ─ together with Brazil, China, India and South Africa ─ Indonesia participates in most OECD activities and the substantive work of our specialised committees. Indonesia is fully integrated into the OECD’s regular work programme ─ including in flagship publications and statistical databases ─ and adheres to many OECD legal instruments, including the Cancun Ministerial Declaration on the Digital Economy, the Declarations on Base Erosion and Profit Shifting (BEPS) and the Automatic Exchange of Information in Tax Matters, and the Paris Declaration on Aid Effectiveness, to name a few. Last year, Minister Bambang and I opened the OECD’s Jakarta office to advance our strategic engagement. And, of course, we also work with Indonesia through the G20, APEC and other global and regional fora.
Our first Joint Programme of Work for 2015-16 has already delivered results. The OECD worked with Indonesia to reform its financial market regulations based on the G20/OECD Principles of Corporate Governance, and contributed to the revised National Anti-corruption Strategy through our ongoing Integrity Review. We also delivered reports tailored to Indonesia’s specific priorities, including Managing Food Insecurity Risk.
The Joint Programme of Work for 2017-18, which we have developed in partnership with the Indonesian authorities, will sharpen the focus of our work on President Widodo’s policy priorities: fighting corruption; broadening the tax base; boosting infrastructure investment; enhancing public sector efficiency and integrity; and improving the business climate. It will also contribute to the implementation of the universal Sustainable Development Goals, leveraging the OECD’s SDG Action Plan. And, of course, it will continue to support flagship collaborations, such as our Economic Surveys.
Our 2016 Economic Survey of Indonesia ─ which I am launching today ─ highlights Indonesia’s extraordinary transformation over the past two decades. The democratic transition, ‘big bang’ decentralisation, and ambitious economic reforms following the 1997 Asian financial crisis have catalysed strong growth ─ averaging 5.5% over the past five years ─ and lifted millions out of poverty. The context is positive: Indonesia’s population is young, the domestic market is large, public debt is low, and the political system is broad‑based and stable.
This is good news! But there is no room for complacency. Growth in 2016 has slipped to 5%, reflecting weaker growth in Indonesia’s key trading partners and lower commodity prices. Poverty rates continue to fall, but the national poverty rate ─ the population share below the poverty line (around USD 25 per month) ─ remains above the official target of 9‑10% (11% in 2015). Income inequality is high and rising and outcomes for citizens living in remote regions continue to lag. To secure sustainable and inclusive growth, to compete in the global economy, and to make the transition to higher income status, the Economic Survey makes many recommendations. I will focus on two in particular, which reflect the main thematic chapters of the report.
First, promoting regional development through decentralisation.
Decentralisation in Indonesia has been rapid and extensive: in 2015, the central government raised 89% of revenues, but handled less than half of all expenditures. But decentralisation has not always been complemented with the right accountability, nor the right technical skills, leading to suboptimal outcomes.
Many regional governments struggle to spend their annual budget allocations. Access to high-quality healthcare, education, and other social services remains uneven. Efforts to improve infrastructure, tackle corruption, and sustainably manage natural resources have not always been effective. Public service jobs have mushroomed, with public employee compensation as a share of total public expenditures (28%) significantly higher than the OECD average (23%). And inconsistent laws and regulations across levels of government are obstructing investment.
The continuing subdivision of political and administrative units ─ pemekaran [pe-mekar-an] ─ is exacerbating these issues. Between 1999 and 2015, the number of provinces increased from 26 to 34, the number of regencies/cities increased by 55%, districts by 77%, and villages by 20%.
Our Economic Survey recommends a more strategic view of decentralisation, including performance-monitoring of sub-national governments and building technical capacity to improve spending and budget administration, and sharpening oversight of the inter‑governmental transfer framework. In the short- to medium-term, grants should be earmarked for national priority areas, such as infrastructure. Over the longer‑term, regional governments should target fiscal autonomy, supplemented by block grants to reduce fiscal disparities.
Second, Indonesia needs to improve tax collections and enhance public spending efficiency.
Tax revenues are low in Indonesia ─ at only 13% of GDP in 2013 ─ much lower than the OECD average (34%). Of Indonesia’s 260 million citizens, only 27 million were registered taxpayers in 2014, and only 900,000 paid what they owed. While the government’s tax amnesty will help recover some lost revenues, the highly concessional rates could negatively impact future tax compliance. The OECD-G20 BEPS Project and the OECD Automatic Exchange of Information Initiative will arm Indonesia with the tools it needs to combat tax evasion and tax avoidance definitively.
But mobilising revenues is only one part of the solution. More efficient public spending to support underfunded areas like health ─ public healthcare budgets represented less than 1% of GDP in 2015 ─ is required. Inefficient expenditures should also be scrapped ─ building on President Widodo’s decisive action against fuel subsidies ─ particularly high‑cost energy subsidies that encourage pollution-intensive activities and are poorly targeted. Food resilience measures should be further reformed to tackle inefficiencies and help lower food prices. Finally, policies with high payoffs, like filling infrastructure gaps, addressing childhood stunting, and expanding conditional cash transfer schemes, should be prioritised.
These are just some of the issues addressed in the OECD’s latest Economic Survey for Indonesia. We also offer recommendations on: advancing industrialisation; boosting competitiveness and investment; fighting corruption; improving governance; strengthening education and skills; addressing child stunting; and sustainably managing Indonesia’s precious natural resources and unique ecosystems.
The importance of open government is an underlying message across these recommendations. Indeed, as President Widodo noted just last year, open government is essential to ‘‘build legitimacy and reinforce public confidence.” The OECD’s 2016 Open Government Review for Indonesia ─ which I am also launching today ─ provides a roadmap for action!
The Open Government Review, which benefited from USAID financial support, showcases Indonesia’s efforts to achieve more participatory, transparent and accountable institutions to restore citizens’ trust and promote inclusive growth. As a founding member of the Open Government Partnership, Indonesia has been a strong advocate of open and transparent government. It has also made good progress domestically: 694 Public Information Offices have been established; participatory forums for local and national development planning ─ Musrenbang ─ support civil society engagement; and LAPOR, the national online complaint management tool, has over 300,000 users. Indonesia is among the first countries in the world to link open government principles and practices to the design and implementation of the SDGs.
Small wonder that 65% of Indonesians have confidence in their national government! By contrast, trust in government fell to 43% in OECD member countries in 2015 (from an already low 45% in 2007).
But challenges remain. Growth in Internet users ─ just 17% of the population ─ has been modest. Indonesia must address the digital divide across regions and income levels, and develop new channels to expand citizen engagement. There is also scope for improving the public sector’s capacity to design, implement and monitor open government reforms at national and local levels. The OECD Network on Open and Innovative Government, co‑chaired by Indonesia, is helping build this capacity.
Ladies and Gentlemen:
Indonesia continues to make great strides. But there’s much more to be done! The OECD stands ready to help, through our analysis, data, knowledge and tools, and our ambitious Joint Programme of Work for 2017-18.
We are proud to continue working with you, harnessing the Indonesian spirit of gotong‑royong, to design, develop, and deliver better policies for better lives in Indonesia.
Terima Kasih! [Thank you!]