This Survey was prepared in the Economics Department by Andrea Goldstein and Patrice Ollivaud under the supervision of Vincent Koen. Alexander Hijzen and Sébastien Martin, from the Directorate for Employment, Labour and Social Affairs (ELS), contributed to the second chapter. Cecilia Tam, from the Environment Directorate (ENV), provided the box on clean energy financing. Yvan Guillemette also contributed to the report; research assistance was provided by Natia Mosiashvili, and editorial support by Sisse Nielsen and Michelle Ortiz. The previous Survey of Indonesia was issued in October 2018. The Survey was discussed at a meeting of the Economic and Development Review Committee on 25 January 2021 with participation of representatives of the Indonesian government and of Italy and New Zealand as lead speakers.The Survey is published under the responsibility of the Secretary-General of the OECD.Information about the latest as well as previous Surveys and more details about how Surveys are prepared is available at www.oecd.org/eco/surveys.

After two decades of sustained, steady growth, the pandemic triggered a “perfect storm”. GDP contracted in 2020 and some of Indonesia’s vulnerabilities have come to the fore, although unprecedented policy interventions have circumscribed the damage.

The COVID-19 pandemic is hitting the Indonesian people and economy hard, with GDP falling and poverty rising. The pandemic-driven recession in 2020 was a brutal interruption to a long spell of sustained economic expansion that saw GDP per capita rise from 19% of the OECD average in 2001 to 29% in 2019 and Indonesia’s contribution to ASEAN GDP grow from 27% to 35% (Figure 1.1). During the 2001-19 period, the compound annual growth rate of GDP was 5.1%, the third-highest in the G20, and growth volatility was the lowest.

Favourable demographics has boosted Indonesia’s economic growth in recent decades, but its contribution will wane over time. Skills and competences will therefore become increasingly important to raise living standards. Educational attainment has improved considerably, but the quality of education remains disappointing. At the same time, technological changes, new organisational business models and evolving worker preferences make upskilling and reskilling increasingly important. This warrants continuous investment in improving education and lifelong training, regarding both quality and quantity, with an enhanced role for social partners. Tackling existing and rising skill shortages requires more participation from women, older adults, internal migrants, disadvantaged groups, and foreign workers. Expanding access to early childhood education would provide all children with better opportunities and bring significant benefits. Reducing informality is key to encouraging investment in skills. The COVID-19 crisis has highlighted workers’ insufficient protection against shocks, underlining the need for unemployment insurance. It is also an opportunity to boost digitalisation and innovate with smart practices. School closures are already penalising learning outcomes and will reduce future earnings.