New Financing Will Support Indonesia to Improve and Protect Human Capital

Washington  – The World Bank’s Board of Executive Directors has approved a $350 million loan on June 29, 2022, to enhance human capital development in Indonesia by safeguarding its people through income protection, increasing access to healthcare services, preventing unhealthy behavior, and improving the effectiveness of government spending.

Since 2010, Indonesia made significant progress in reducing stunting, expanding social protection, moving toward universal health coverage, and expanding student enrolment in education. Indonesia’s Human Capital Index (HCI) – which quantifies the contribution of health and education to the productivity of the next generation of workers –steadily improved from 0.50 to 0.54 between 2010 to 2020.

Despite this progress, Indonesia’s HCI score is below the average of East Asia and Pacific countries, driven by weaknesses in education and social insurance systems, as well as a relatively high stunting rate, despite recent progress.

The Indonesia Human Capital Development policy loan targets some of the most pressing of these challenges by supporting key policy reforms that boost human capital throughout the life cycle of all Indonesians. The Coordinating Ministry for Human Development and Culture (Kemenko PMK) will be the executing agency for the World Bank financing.

“Indonesia is facing globalization and there is no choice but to increase human capital competitiveness. The nation that will survive, win and succeed in this era is a nation that is knowledgeable and skilled, and has strong character” said Muhadjir Effendy, Coordinating Minister for Human Development and Cultural Affairs at the recent inauguration of Karanganyar Muhammadiyah University.

Through this financing, the World Bank will support the Indonesian government’s policies for improving the nutrition of pregnant women and decreasing childhood stunting, reforming tuberculosis service delivery, and using telemedicine service to enhance access to health services in rural and remote areas.

In addition, the financing will support taxation measures to discourage smoking and tobacco use for better long-term health outcomes, as well as the introduction of unemployment insurance with cash benefits, training, and job-search assistance to help workers and their families weather economic shocks and natural disasters.

“As the World Bank’s first human capital development policy loan in East Asia and the Pacific, this support acknowledges Indonesia’s strong commitment to progress in human capital development,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste. “The operation supports a set of reforms that will help unleash the full potential of all Indonesian citizens.”

The new financing is aligned with the World Bank Country Partnership Framework (CPF) for Indonesia 2021-2025, particularly in nurturing human capital by strengthening quality and equity in nutrition, health, and social protection.