Election Year Economics: Understanding Indonesia’s Development Challenges in 2024 (Part-2)

By: Dr. Mohamad Ikhsan Modjo (Financial Economic Specialist’s BINUS International Finance Program)

In terms of development challenges in the environmental sector, in the context of climate change, Indonesia has participated in the International Climate Change Conference (COP28) in 2023 as part of the country’s commitment to strengthen the implementation of global climate actions following the Paris Agreement and operationalize the first contribution set as Indonesia’s national commitment. The Indonesian government has also produced some fiscal instruments to support this commitment through the mobilization of financing to mitigate the impacts of climate change and promote renewable energy investments to achieve the target of reducing greenhouse gas emissions by 41% by 2030.

In the social sector, the biggest challenge is the effort to alleviate poverty and inequality, which still remain the biggest specter of development in Indonesia. In 2023, although the poverty rate had dropped to below 10% in 2023, some problems persisted. One dimension of poverty that is still poor in Indonesia is the dimension of nutritional adequacy (malnutrition). The UNICEF report on multidimensional poverty in Indonesia in 2017 showed that almost 37%, or 1 in 3, of Indonesian children under five years of age had stunted growth. Likewise, 1 in 10 Indonesian children under five years of age is suspected of suffering from acute malnutrition.

Further, existing data also indicates an increase in urban poverty in Indonesia, where an increase of 0.50 million urban poor was recorded in 2023 despite a decrease in the percentage rate. One of the causes of this increase in poverty is the faster pace of urbanization compared to previous years, with predictions suggesting that about 68% of Indonesia’s population will reside in urban areas by 2025.