Australian Government, 2006–07 Budget

Chapter Three: Indonesia

Country program estimate
$125.0 million
Australia-Indonesia Partnership
for Reconstruction and Development (AIPRD) $178.4 million
$178.4 million
Estimated other ODA
$40.9 million
Estimated total ODA
$344.3 million

Indonesia development indicators

Indonesia development indicators

Source: GNI per capita: World Development Indicators, World Bank, 2005; other indicators: Human Development Report, UNDP, 2005.

  • Through the AIPRD, Australia will provide $300 million to build and upgrade 2000 junior secondary schools, and support teacher development and financial and asset management. Australian assistance of $328 million will help upgrade national roads.
  • Australia is working with Indonesia to strengthen economic and public sector management through a $50 million government partnerships initiative. In 2006-07, 253 Australian Partnership scholarship awards will be provided to Indonesian students.
  • To date, $151 million has been allocated to assist reconstruction in Aceh and Nias, including for building 19 schools and 180 village halls and mapping over 24,000 parcels of land.
  • Australia is providing $15.5 million to help mitigate Avian Influenza.

Indonesia has made significant progress towards consolidating economic and financial stability and building democratic institutions. Following the Indian Ocean tsunami in 2004, the Indonesian Government successfully negotiated a peace settlement with the Free Aceh Movement, ending 30 years of civil conflict. In October 2005 the Indonesian Government reduced costly and poorly-targeted fuel subsidies and implemented an associated cash compensation program for the poor. While the compensation program is undergoing refinement, the reduction in subsidies has freed up a large portion of government spending for development‑focused initiatives.

Indonesia has also made progress in rehabilitating the areas affected by the tsunami. Australian support has been instrumental in restoring basic services and rebuilding communities. While there have been delays in the reconstruction process, reflecting the scale of the disaster and the challenges of local capacity and land ownership, real progress is now being made. In Aceh, through the collective efforts of governments and donors, by the end of 2005 over 16,200 new houses had been completed, 235 kilometres of roads had been restored, and 335 new schools had been built or were under construction.

In order to sustain long-term growth and development, Indonesia requires additional investment in its human capital. The number of Indonesians living on less than US$2 per day is approximately 100 million and growth rates of around 5 per cent, although strong, have remained persistently below the 7-8 per cent necessary to achieve significant inroads into poverty.

Australia is providing comprehensive assistance in support of Indonesia's economic and social development objectives. Australia's aid program to Indonesia, including the $1 billion AIPRD, focuses on four key areas: strengthening economic management and growth, promoting democracy, enhancing security and stability, and ensuring basic service delivery.

Diagram 7: Estimated AusAID programs in Indonesia by sector 2006-07

Diagram 7: Estimated AusAID programs in Indonesia by sector 2006-07

The Australia-Indonesia Partnership for Reconstruction and Development

The AIPRD is a landmark partnership between Indonesia and Australia. The AIPRD engages both governments at the highest political levels in support of Indonesia's reconstruction and development efforts, both within and beyond tsunami-affected areas. The AIPRD is governed by a Joint Commission, overseen by the Prime Minister of Australia and the President of Indonesia. The Commission also comprises Australia's Minister for Foreign Affairs and Treasurer; and Indonesia's Minister for Foreign Affairs, Minister for Finance, and State Minister for National Development Planning and Chair of the National Planning Board.

The AIPRD consists of $500 million in grant funding and $500 million in highly concessional loans. AIPRD is in addition to the existing Australian aid program to Indonesia. By the end of December 2005 almost $950 million of the AIPRD's $1 billion available funding had been allocated to activities agreed by the Joint Commission. This included:

  • Over $150 million for Aceh;
  • $300 million for basic education;
  • $328 million for the improvement of national roads;
  • $78 million for postgraduate scholarships; and
  • $50 million for government partnerships in economic and public sector administration.

Economic management and growth

Economic management

Australia is working with Indonesia to strengthen economic and public sector management. Australia, through a range of agencies including the Treasury, the Australian Taxation Office and the Australian Public Service Commission, is assisting central Indonesian economic and public sector agencies. Technical assistance to Indonesian economic ministries is also being provided in areas such as infrastructure policy, financial sector development, debt management and trade policy.

Economic infrastructure

Through the AIPRD loans program, Australia is supporting the improvement and rehabilitation of more than 2,000 kilometres of national roads, and the replacement of 4,500 metres of steel truss bridges in eastern Indonesia. Grant funds will be used to build the capacity of the Ministry of Public Works in road design, management and maintenance. Australia's direct support for road infrastructure is complemented by the provision of expert advice on infrastructure policy.

Private sector development

Australia is working with the International Finance Corporation and other donors to support the growth of small and medium-sized enterprises (SMEs) in eastern Indonesia. Australian support is improving access to finance, strengthening business performance and improving the regulatory environment.

Through the Smallholder Agribusiness Development Initiative, a $25 million program over four years, Australia is assisting agribusinesses in eastern Indonesia to improve production and marketing practices and strengthen agricultural research through the Australian Centre for International Agricultural Research.


Australia is supporting the development of strong democratic institutions and encouraging broad participation in democratic processes.

Civil society

The Australian Community Development and Civil Society Strengthening Scheme aims to improve the capacity of participating NGOs to support local development and poverty reduction programs. The scheme also includes the Bali Rehabilitation Fund which improves employment opportunities for economic victims of the October 2002 bombings, supports Balinese SMEs and improves prospects for alternative income generation.

Mainstream Islamic organisations

Mainstream Islamic organisations play a crucial role in the development of a democratic, peaceful and tolerant Indonesia. Australia is collaborating with the Asia Foundation to strengthen civil society, enhance women's rights, ensure free and fair elections, support education reform and build tolerance and understanding. This work is primarily carried out through partnerships with Muslim mass-based organisations which are well supported by the poor and disadvantaged.


Australia is currently the only donor supporting voter education and election monitoring in connection with a series of elections at provincial, district and city level across Indonesia. Australia works in partnership with the Asia Foundation and the People's Network for Voter Education: a large coalition of mainstream Islamic, Christian and secular NGOs.

Legal and judicial reform

Australia supports Indonesian Government agencies, legal and judicial institutions and human rights-focused civil society organisations to advance essential legal and judicial reform. Australia will assist Indonesia's Prosecution Service and the Anti-Corruption Commission to improve the justice system and promote accountability in public office.

Security and stability

Australia is facing a substantially more complex and challenging regional security environment. The aid program will continue to prepare for and respond to new and emerging challenges and security threats, such as pandemics, transnational crime and terrorism, by supporting the Government's efforts to advance stability and security in the immediate region.

Avian Influenza and other communicable diseases

The Government through AusAID, the Department of Health and Ageing and the Department of Agriculture, Fisheries and Forestry, is working with Indonesia to strengthen its capacity to prepare for and respond to infectious diseases such as Avian Influenza. Australia has so far provided assistance valued at $15.5 million to mitigate Avian Influenza. The funding is improving the response to a potential outbreak through strengthening public awareness and information-sharing, and supporting improvements in disease detection, diagnosis and containment.

Australian funding is also being used to address the spread of HIV/AIDS. Australia is currently funding HIV/AIDS programs to the value of $38 million. Australian assistance focuses on high priority issues such as improving HIV/AIDS care and treatment in vulnerable provinces.

Australian support is helping to contain the recent resurgence of polio in Indonesia. Through the World Health Organization (WHO), Australia has helped Indonesia vaccinate 24.5 million children and reached some 87 per cent of the population.

Emergencies and disasters

Australia is working with key partners such as Emergency Management Australia and BAKORNAS (the Indonesian disaster management agency) to strengthen disaster preparedness and response procedures. The aid program works with key Islamic and civil society organisations such as the Indonesian Red Cross to strengthen disaster preparedness and increase community awareness. During 2005 and 2006, Australia provided responsive and effective assistance to deal with emergencies such as the Nias earthquake on 28 March 2005, Bali bombings of 1 October 2005 and floods which hit East and Central Java in January 2006.

Assistance to Aceh and Nias

In the wake of the tsunami, Australia contributed $122.8 million to humanitarian and emergency relief, of which over $71.8 million went to the Aceh and North Sumatra provinces in Indonesia. The AIPRD is now assisting Aceh and Nias to rebuild over the long term. Over $151 million has been allocated from the AIPRD to restore infrastructure and services to Aceh.

Current priorities include the rebuilding of essential infrastructure such as the major provincial hospital and school buildings; Banda Aceh's main port facility of which an interim terminal was opened on 8 December 2005; and community infrastructure such as village halls and local government offices.

Land mapping is restoring property boundaries and providing security of title where records have been lost. Australian NGOs are involving local communities in reconstruction, upgrading and rebuilding temporary and permanent shelters and enhancing local government planning.

Australia is directly helping villagers through community construction programs that generate employment, and through the restoration of vital agricultural and fishing industries.

The total Australian Government commitment to relief and reconstruction activities in Aceh and Nias (including humanitarian and emergency and other government department expenditure) is over $220 million to date.


Australia will assist Indonesia to strengthen its legal regime to counter terrorism and transnational crime and help Indonesian institutions coordinate counter-terrorism policies and responses. This complements the AFP's support to the Indonesian police force through the Transnational Crime Centre. Australian support is furthering financial and legal reforms to identify and prosecute money laundering, including assistance to Indonesia's Financial Transaction Reports and Analysis Centre. The aid program works closely with the Department of Transport and Regional Services and the Department of Immigration and Multicultural Affairs to assist Indonesia in the areas of aviation and people movement.

Service delivery


A total of $300 million (comprising $100 million in grants and $200 million in AIPRD loans) will be used to expand construction of junior secondary education facilities. Assistance will be provided to poor and remote districts that have low enrolment rates and an under-representation of girls in schools. Infrastructure support will be complemented by assistance for teacher development and financial and asset management.

Australia will work closely with the Government of Indonesia and other donors to improve the quality and accessibility of primary and early secondary schooling in secular and mainstream Islamic schools. Australia's support will provide teaching resources and enhance teacher skills through in-service training.

Scholarships and training

Of the 600 additional Australian Partnership Scholarships announced by the Prime Minister and the Indonesian President in April 2005, 347 have been awarded and 253 will be awarded in 2006-07. The scholarships focus on, in particular, economic governance, public sector management and education. They are additional to the large number of postgraduate scholarships awarded each year under the Australian Development Scholarships program. Australia's investment in the people of Indonesia is reinforced through the provision of specialised training programs to around 5500 participants per year, who mainly come from provincial and district government agencies.


Health programs in the East Nusa Tengarra and Papua provinces aim to improve maternal and child health, and work closely with the United Nations Children's Fund (UNICEF). A major new program in maternal and child health will complement new area-based development programs in eastern Indonesia.

Australia has provided approximately $10.5 million to improve health services in Bali since the October 2002 bombing. Australian support is assisting the Sanglah Hospital and funding construction of the Australia-Bali Memorial Eye Centre. Australia is also providing medical scholarships and short course training for Balinese health workers.

Map 1: Indonesia

Map 1: Indonesia

Source: GRi.D Communications Pty Ltd.

Strengthening livelihoods in eastern Indonesia

Indonesian provinces such as East and West Nusa Tenggara, South and South East Sulawesi and Papua remain among the poorest in Indonesia. Australia is implementing several major development projects in eastern Indonesia in health, education, HIV/AIDS prevention and care and local NGO capacity building.

Australia is moving toward area-based approaches in eastern Indonesia which promote integrated strategies for development by strengthening the capacity of regional governments to respond to priorities. These approaches draw together and maximise the impact of Australian programs and accord high priority to joint work with other donors. To be effective, area-based approaches must ensure coherence, collaboration and alignment with government policies and programs.

The Australia-Nusa Tenggara Assistance for Regional Autonomy Program, for example, aims to build government administrative capacity, increase peri-urban and rural incomes and improve the access to and quality of essential services. The program draws upon a budget of $30 million over five years to achieve these goals.

Water and sanitation

Australia works closely with the Government of Indonesia to improve implementation of sound water and sanitation policy. Poor communities, especially those outside Java, continue to suffer from inadequate access to clean drinking water. Australian assistance aims to improve the delivery of essential, affordable services to low income communities, particularly at the district level. Australian support for the Water and Sanitation Policy Formulation and Action Project and the World Bank Water Supply and Sanitation for Low Income Communities Project totals $19.2 million.