ADB's Work in Indonesia

Building Back Better

In December 2004, severe earthquakes rocked Indonesia, triggering a tsunami that killed more than 160,000 people and obliterated most infrastructure in the province of Aceh. The tsunami destroyed more than 100,000 houses and left half a million survivors in Aceh without shelter.

ADB responded by providing more than $382 million to Indonesia from the $600 million Asian Tsunami Fund. Importantly, it moved the administration of the program to the frontlines of the affected area, so it could respond quickly to local needs.

After the disaster struck, housing was a priority for the half a million survivors in Aceh. In addition, roads and bridges were impassable, and power and other utilities had been destroyed. Despite the massive scale and complexity of the undertaking, ADB’s work in those difficult days contributed to a return to normalcy for many residents and improvements in their lives.

“These ADB houses are still very sound. It’s 8 years now since they were constructed,” said survivor Zahrul Fuady of the 8,500 new homes built with ADB support after the disaster. He noted that government services and even landscaping in the area were improved during the reconstruction.

"We thank ADB for being one of the most important development partners with Indonesia. We welcome the ADB’s continued prioritization of its knowledge sharing programs. These programs provide the framework for countries to learn from others and share best practices in addressing development issues."

A $20 million grant from ADB for new irrigation channels also helped rehabilitate 50,000 hectares of farmland on the northern Aceh coast. As Aceh’s Provincial Agriculture Development Officer Kharril Hadi explains: “The new irrigation channels have helped a lot. We now have two crops of rice per year, and production per hectare has doubled from 4 tons to 8 tons. This has really helped increase rural incomes.”

As part of the project, nearly 20,000 houses were reconstructed, 600 kilometers of national roads restored, 1,600 kilometers of irrigation channels built, 677 schools rehabilitated, and 8,000 new wells dug in the province. ADB also funded eight power supply and distribution projects.

Scaling Up Agriculture

Strong collaboration on reconstruction built on a longstanding partnership. Indonesia was a founding member of ADB and a close partner for nearly 4 decades. When the relationship began, Indonesia was primarily an agricultural country and that is where ADB’s work was initially focused.

In August 1967, ADB approved its first-ever technical assistance project, the $80,000 Foodgrain Production project. The relatively modest project to improve food production and availability in Indonesia turned out to have important long-term results. The project triggered ADB’s early support for rice intensification, which contributed to Indonesia’s green revolution. Later cooperation helped Indonesia adopt high yielding varieties of paddy rice, transforming food production in the country.

Rice yields rose from just over 1 ton per hectare in the 1960s to more than 3.5 tons per hectare by the end of the 1970s, and poverty, which had been concentrated in the rural areas, fell from two-thirds to one-third of the population in the same decade. The Tajum Irrigation Project, which was approved in 1969, contributed to this effort. The project was ADB’s first loan to Indonesia and the first loan to focus on agriculture infrastructure.

During the 1970s, Indonesia broadened its partnership with ADB and became its largest borrower. Although ADB remained active in agriculture, the work moved off the farm in the 1980s and into energy, urban infrastructure, and education. For example, the Small Towns Water Supply Sector Project, approved in 1980, provided access to clean, piped water to more than 500,000 people in 33 towns across the country.

Rising From Adversity

From 1990 to 1996, Indonesia’s gross domestic product grew by 7%–9% per year and the country was considered as one of Asia’s emerging tigers. In 1997, after the onset of the Asian financial crisis, however, the economy deteriorated and poverty worsened.

Bankruptcy hit many in the banking and corporate sectors, and social development indicators fell. The country was able to regain social, macroeconomic, and political stability, and in 2003 graduated from the program set up by the International Monetary Fund to assist countries hit hard by the crisis. ADB’s work at this time focused on finance sector reform and resilience.

Today, Indonesia is the largest economy in Southeast Asia and the 16th-largest economy in the world.

ADB has also played an active role as catalyst, coordinator, and knowledge leader of regional cooperation and integration. It has been involved in the Indonesia–Malaysia–Thailand Growth Triangle subregional program, which aims to stimulate economic development in the less-developed states and provinces in the three countries. It also advises the Brunei Darussalam–Indonesia–Malaysia–Philippines East ASEAN Growth Area subregional program, launched in 1994 to accelerate economic development by increasing trade, tourism, and investment in areas far from national capitals.

Now that Indonesia has built stronger systems and capacity, ADB’s assistance has adjusted to reflect the complex development needs of a rapidly evolving middle-income country. Today, ADB is helping to improve infrastructure and environmental sustainability, strengthen economic governance, and develop human resources.

This article was originally published in a special edition of Together We Deliver, which tells 50 stories highlighting the importance of good partnerships in Asia and the Pacific in meeting the complex development challenges of this dynamic region.