OECD Economic Surveys: Indonesia 2024

Andrea Goldstein
OECD

The continuous integration of digital technologies, including broadband connectivity, artificial intelligence, and machine learning, into economies has the potential to bring about considerable benefits, in particular for emerging market economies, including Indonesia, where much technology in use is still distant from the frontier (OECD, 2020[1]). High-quality broadband connections make it more efficient to conduct interactions within and among firms, as well as between firms and customers, thereby increasing total factor productivity. Affordable access to information and communication technologies (ICT) boosts automation of routine tasks and frees resources for other investments, including in innovation. More broadly, digitalisation can improve the delivery of education, health and other social services, smoothen the functioning of labour and financial markets, and make policymakers more accountable to voters.

Wider and deeper digitalisation can potentially accelerate growth and help Indonesia reach the aspirational goals set for the centenary of Independence in 2045 – which include becoming a high-income country free from poverty, as highlighted in the country’s long-term development plans (RPJPN) 2025-2045 (Indonesian Presidency, 2024[2]). An expanded digital economy could add 11% to Indonesia’s GDP over the next two decades (Asian Development Bank, 2022[3]). Recognition of the opportunity to reap further benefits from digitalisation, while also addressing its challenges, is illustrated in the many related policy initiatives underway. In addition to an overarching digital roadmap, strategic plans have been made to accelerate digitalisation in specific sectors, embrace artificial intelligence, and address cybersecurity. The policy effort is illustrated by the many Presidential and Government Regulations (Box 3.1).

In some respects, Indonesia’s digital transition is progressing well. Mobile telephony subscriptions per 100 inhabitants are comparable to those of peers (Figure 3.1, Panel B), and similarly for usage rates (ITU, 2024[4]). Electronic commerce is well-developed and the digital ecosystem is vibrant, as shown inter alia by the considerable number of “unicorns,” i.e. startup companies valued at over USD 1 billion which are privately owned and not listed on a stock exchange (see below). In addition, as elsewhere, the pandemic has prompted advances in the application of online technologies for remote work, education, and medical assistance. Also, the availability of digital databases and trusted data exchange helped advances in e-government.

However, in some other dimensions Indonesia’s digital transition is too slow. This is partly due to the challenges of providing infrastructure and services across an archipelago of 17 000 islands. Fixed broadband penetration is relatively low (OECD, 2023[5]) and the roll out of 5G mobile technology remains at an early stage, with coverage limited to 15% of the population in late 2023, according to GSMA Intelligence (2023[6]), one of the lowest in Southeast Asia. Broader connectivity issues in remote areas, partly reflecting the specific technical and economic challenges of Indonesia’s geography, contribute to wide digital divides.

This chapter first outlines the main features of the connectivity landscape in Indonesia and highlights some of the key issues. It then examines digitalisation issues relating to private sector development, finance, e-government, education, online data privacy, and cyber-security.

Over the past decade, Indonesia’s communication market has grown rapidly. Between 2011 and 2017, the number of mobile subscriptions per 100 inhabitants grew from 101 to 163, before descending to 115 in 2022 as users switched from multiple pre-paid SIM cards to all-inclusive subscription packages (Figure 3.1, Panel A). According to the National Socioeconomic Survey (Susenas), the share of households accessing the internet (at a speed of 256Kbps in the past three months) nearly doubled from 42% to 82% between 2011 and 2022. The share of households with a broadband connection at home, which was as modest as 5% in 2011, as of 2022 was approaching the OECD unweighted average (87% vs. 91%) (OECD, 2024[7]).

4G is the most widely used mobile technology in Indonesia, accounting for 85% of connections in 2022. This indicator is second only to Malaysia (94% of connections) in Southeast Asia (OECD, 2023[5]). The 4G network coverage is wide (97% of the population in 2022) and mobile broadband services are affordable (ITU, 2024[4]). On the other hand, 5G services were first deployed in 2021, but rollout has been relatively slow, partly due to the country’s geography. In December 2023, 5G population coverage stood at 16%, compared to 90% in Thailand (GSMA Intelligence, 2024[8]). A government target to bring 5G coverage to 4G coverage levels by 2024/2025 seems unlikely to be met.

Broadband’s greater capacity means it is particularly important for sectors that have large data and internet needs. In terms of infrastructure, broadband requires the deployment of future-proof, high-performance backbone and backhaul networks capable of delivering high-quality services to the end-user. In particular, it is necessary to deploy fibre backhaul networks closer to the end-user to enable 5G. The last mile to reach the end-user is completed by access networks of different technologies, wired or wireless, fixed or mobile (e.g. fibre-to-the-home, hybrid fibre-coaxial, fixed wireless access, satellite, 4G, 5G), complementing each other to deliver the required broadband services according to technical, geographical, or economic efficiency criteria.

While mobile broadband penetration is high, fixed broadband penetration is low, both in international comparison (Figure 3.1, Panel B) and relative to Southeast Asia (OECD, 2023[5]). In 2016, there were two fixed broadband subscriptions per 100 inhabitants, by 2022 they had only risen to 4.9 subscriptions. Take up has been largely via ‘triple-play’ service plans that bundle fixed broadband with fixed voice and internet protocol TV (IPTV) (Mendoza, 2023[10]). In 2021, almost half of households (44%) cited high costs as the main reason for not subscribing to fixed broadband services (Wibisana et al., 2022[11]). Widespread access to fixed broadband is necessary for ensuring a comprehensive communication infrastructure. Fixed broadband is complementary to mobile access technologies and can help increase capacity and performance of all broadband access technologies. Although mobile broadband prices are relatively affordable in terms of purchasing power (OECD, 2023[5]), Indonesia is one of the most expensive emerging markets for fixed broadband (Panel C). Quality and speed are additional concerns. While the number of fixed broadband subscriptions per 100 inhabitants providing services at reasonable speed is similar to far wealthier countries (Figure 3.2, Panel A), in February 2024 Indonesia’s fixed broadband speed was the slowest in a comparison of selected emerging and ASEAN economies (Figure 3.2, Panel B). The deployment of high-speed fixed infrastructure is therefore important to increase fixed broadband performance, with 5G networks relying mostly on backbone and backhaul fibre networks (Figure 3.1, Panel D).

Geography, as well as socio-economic factors, play a role in differences in digital take up in Indonesia. Take up is particularly low in Indonesia’s “3T Regions” (i.e., disadvantaged, frontier, and remote regions). Indeed, the take up gap between Java and the rest of Indonesia, already large, is widening, as is the gap between urban and rural areas (Xuyao, Satria and Kurniawati, 2023[12]). While some provinces such as Kep, Bangka Belitung and Jambi have substantially improved the penetration rate, others such as Papua Barat and Sulawesi have disappointed. The urban-rural differential is the eighth largest among 35 representative comparable countries (Figure 3.3). In terms of gender, despite digital access rising between 2020 and 2022 from 51% to 64% among the female population, the gap vis-à-vis the male population remained stable at six percentage points (OECD, 2024[13]). Results from a statistical model indicates that age, education level and region are the most significant determinants of internet access (Box 3.2).

Developing ICT infrastructure to support the digital transformation has been a major component of the national medium-term development plan (RPJMN) 2020–2024 (Indonesian Presidency, 2020[15]). The Palapa Ring project, a nationwide high-speed backbone network which required the laying of more than 35 000 kilometres of land and sea fibre-optic cables, has substantially widened connectivity. The USD 1.5 billion project brought 4G internet services to all of Indonesia’s 514 kota/kabupaten (cities/districts). But challenges remain. Especially in rural districts in 3T regions, profitability concerns discouraged operators using the Palapa Ring to provide infrastructure to connect the landing stations of submarine cables to medium and small towns (OECD, 2023[5]). Satellite internet has engineering advantages in overcoming geographical challenges but is more vulnerable to weather conditions and requires high capital investment. Three geostationary multifunction satellites (SATRIA, for SAteliT Republik IndonesiA) are to be launched before 2030 to improve internet coverage in the 3T Regions.

Further investment will depend on progress in tackling two issues that increase the price and limit the quality of Indonesia’s fixed broadband connectivity (OECD, 2023[5]). First, fixed broadband operators have proven reluctant to share passive infrastructure, while this is a widespread practice among mobile networks. Insofar as ducts, poles, rights-of-ways, manholes, and civil works account for as much as three quarters of the installation and maintenance costs for fixed broadband, sharing costs among providers would be advantageous and result in higher investments (Wibisana et al., 2022[11]). The Omnibus Law on Job Creation (see Chapter 2) also mandates passive infrastructure sharing and the next step in this regard is the issuance of implementing regulation. This will require effective leadership to coordinate the government agencies involved. In addition, there is value in streamlining environmental and other permits required for installing digital infrastructure into integrated licences. Secondly, Indonesia’s licensing regime requires service providers to bid for service-specific licenses (OECD, 2023[5]). Simplifying communication licensing regimes considerably reduces transaction costs, facilitates market entry and speed ups administrative processes for network deployment. As such, OECD countries have moved away from service-based licenses towards single-class licence models based on a “registry” (OECD, 2020[16]).

Following liberalisation in 1999, around a dozen operators entered the market. Enhanced competition brought lower prices, but low margins depressed corporate results and led to progressive consolidation. In 2022, the merger of the second- and third-largest carriers to create Indosat Ooredoo Hutchison (Indosat) was approved. There are still four major carriers in operation, and this may be more than is optimal according to some experts. For instance, Eliott et al. (2023[17]) claim “consolidation presents a trade-off for consumers: faster downloads at the cost of higher prices. […] Total surplus is maximized at three firms.”

Partly government-owned incumbents still play an important role in both the fixed and mobile markets. In fixed broadband, Telkom Indonesia accounted for about 80% of the residential market and 90% of the business market at end-2021 (OECD, 2023[5]). Moreover, the government is the sole owner of “Series A” shares in both the state-owned fixed telephony carriers and in Indosat (in which PT Perusahaan Pengelola Aset, a state-owned asset management company, holds a 9.6% stake). Series A shares grant veto rights over some key business decisions and appointments, which means that in practice the government retains influence over the strategy of the main competitor to the largest telecom SOE (OECD, 2023[5]).

At present Indonesia does not have an independent regulatory body for the telecoms sector. The Telecommunications Regulatory Body (Badan Regulasi Telekomunikasi Indonesia, or BRTI), established in 2003, was given independent powers to issue licenses and resolve disputes. Yet it was not fully independent of the Ministry of Communications and Informatics (Kominfo) (OECD, 2023[5]). Furthermore, the selection and appointment criteria for BRTI leadership were unclear and staffing and budget were limited. BRTI was disbanded in 2020 following a governmental decision to streamline functions. This move is at odds with recommendations of the OECD’s Council on Broadband Connectivity that call for regulatory decisions in the communication sector to be made “in an independent, impartial, objective (evidence- and knowledge-based), proportionate, and consistent manner” (OECD, 2021[18]). Relying on independent economic regulators is a standard practice in OECD countries. For example, Mexico’s Federal Telecommunications Institute (IFT), created in 2013, is assessed as an autonomous public agency, independent in its decisions and function, with its own legal status and resources (OECD, 2017[19]; 2024[20]).

Given the presence of incumbent state owned/controlled operators, it is important that Indonesia’s communication regulation aligns with competitive neutrality principles (OECD, 2023[5]). These principles aim to ensure that all players (e.g., public, private, Indonesian, or foreign) face the same set of rules around competition (OECD, 2021[21]). There is indeed a risk that entities with state ownership may receive favourable treatment, for instance in access to essential facilities or government tenders. The authorities should consider conducting a competitive neutrality review in the communication sector along the lines of the OECD Competitive Neutrality Reviews: Small-Package Delivery Services in Indonesia (OECD, 2021[22]), which uses the OECD’s Competition Assessment Toolkit to identify ways to encourage greater competition.

There are specific shortfalls in regulation of the communication sector (OECD, 2023[5]). Indonesia lacks a phone number portability guarantee. It also imposes high barriers to foreign equity ownership (e.g., there are shareholding limitations on fixed telecommunication networks and internet telephony for public purpose, plus requirements to reserve certain management positions for Indonesian nationals). Furthermore, land ownership restrictions raise the cost of installing telecommunications towers and secondary spectrum trading is prohibited. Concerning number portability, the Chilean experience with the web-based facility “Me quiero salir” (I want to break free) created by SERNAC (the National Consumers’ Agency) may be relevant for Indonesia. This service facilitates contract cancellation, making it easier to change provider (OECD, 2022[23]). Barriers to interconnections among network operators, as well as some restrictions on cross-border data flows, also make Indonesia relatively closed to digital trade (OECD, 2021[22]).

Efficient spectrum management can be a key enabler for investment in communication services (OECD, 2022[24]). In terms of assignment (i.e. making spectrum available in the market), experience across the OECD has shown that transparent and well-designed licensing regimes, including auctions, provide legal certainty, with the aim of fostering long-term investment and catering to innovation (OECD, 2022[24]).

Indonesia faces issues with the availability and use of mobile spectrum. There is a shortage of spectrum for providing high-speed mobile broadband in urban areas (Zagdanski, Bahia and Castells, 2023[6]). Government auctions of new spectrum have been postponed on numerous occasions and are currently expected to take place at end-2024 at the earliest. Advancing with the planned spectrum auctions would help resolve these issues and promote the deployment of mobile networks (OECD, 2023[5]). In this vein, spectrum licences could be assigned for a longer period than the current ten years, to increase incentives to invest in network development. In most OECD member countries, spectrum licences have duration periods ranging from 10 to 30 years, with clear conditions for licence renewals and revocation (Crean, 2022[25]).

Universal telecoms service provisions are important in the Indonesian context, as a significant fraction of households are seen by authorities as commercially unviable customers. A universal service programme began in 2003. It was initially financed directly from the national budget, but in 2005 it switched to a funding model in which communication operators paid 0.75% (later raised to 1.25%) of gross revenues (GSMA, 2013[26]). The fund is administered by the Telecommunications and Information Accessibility Body (BAKTI). BAKTI’s main activities comprise: i) building base transceiver stations; ii) implementing the Akses Internet programme to provide free satellite Internet services to schools, health centres and other public buildings, and iii) initiating the Palapa Ring and iv) the SATRIA satellite programme.

Research points to scope for operational improvements and greater transparency in the management of BAKTI. A lack of capacity may have delayed disbursements and hampered effectiveness (UNESCAP, 2017[27]). Based on fieldwork research in Southwest Sumba District, Hunsa and Budiman (2023[28]) suggest that further efforts should be made to increase transparency over the choice of priority areas of BAKTI’s interventions, visibility over medium-term plans, and communication and accountability vis-à-vis business, local communities, and other stakeholders.

While Indonesia hosts a relatively large number of “unicorns” and a venture capital market is developing (Box 3.3), the wider business sector makes comparatively relatively little use of basic, let alone advanced, digital tools and technologies (World Bank, 2021[29]). According to one survey only 6% of firms used new technologies throughout their operations, 30% of them had adopted technology to an intermediate degree, and 64% had adopted basic technology only (Asian Development Bank, 2020[30]). Around one in seven medium-, small- and micro-sized enterprise (MSME) are estimated to use the internet for marketing and delivering products and services (Wicaksono and Simangunsong, 2022[31]). The share of firms that operate their own website is below the rate in ASEAN and G20 peers. However, along some other dimensions, such as using foreign-licensed technology or having an R&D budget, Indonesia is not the worst-ranked (Figure 3.5).

There is substantial evidence underscoring the potential benefits of greater use of digital technologies in Indonesia, in particular internet use. Based on a survey of 1 100 firms, Damuri et al. (2018[34]) finds that an online presence increases sales by 12%, more so for smaller firms. Falentina et al. (2021[35]) find positive effects on local incomes, labour productivity, and exports in a study of internet use in the city of Yogyakarta. A study using the Indonesia’s labour force survey finds internet adoption in rural Indonesia was associated with a 29% increase in household income (Priyatna, 2022[36]). Yan Ing and Zhang (2023[37]) find that direct imports of automation equipment by manufacturing companies is associated with strong performance on several fronts, including output, employment, wages and productivity. Using the Indonesia Family Life Survey, Kharisma (2022[38]) finds use of the internet strengthens social capital.

Low adoption of digital technologies is particularly pronounced in agriculture (Mercy Corps and Rabo Foundation, 2021[39]). Most farmers in Indonesia did not advance beyond primary school, are over 45 years old, and do not use the internet. Networks of peers, family or friends are the main information source, only about a fifth use social media to buy or sell, with under 5% active on e-commerce sites. Meanwhile, evidence suggests Internet use positively and significantly affects farmers’ subjective well-being, in particular in the lowest income quintile (Rahman et al., 2023[40]).

There are many policy initiatives aiming to facilitate the digital transformation of Micro, Small and Medium-sized Enterprises (MSMEs). The government has launched initiatives such as Making Indonesia 4.0 Roadmap (in 2018), E-Commerce Roadmap (2019), and Go Digital Vision (2020). KADIN CIPTA facilitates access to blockchain-based digital identity for industry and MSMEs that produce analytics and data available to third parties. The Promise II Impact programme of the ILO focuses on strategies to improve SMEs’ productivity and scale and support the adoption of digital technology by regional development banks (BPD), rural banks (BPR) and buyers. The Ministry of Trade runs a programme to promote education and awareness among consumers regarding their rights in e-commerce.

Some regulatory initiatives have potential downsides for digital adoption. A case in point is Regulation 31 on “Business Licensing, Advertising, Guidance and Supervision of Business Entities Transacting Through Electronic Systems”, issued in 2023. It introduces new requirements and restrictions for both onshore and offshore e-commerce businesses, including a minimum price for imported goods, a prohibition on social commerce platforms facilitating payment transactions, and ceilings on direct e-commerce purchases from overseas. Limiting social-commerce platforms to “showcase goods and/or services” effectively prevents any direct dealings between sellers and buyers and may damage the ability of e-commerce to support SMEs. There are also some other additional compliance burdens imposed on e-commerce operators. Violations may lead to administrative actions, including blocking of access to websites/platforms and revocation of business licenses. The impact of these regulations on e-commerce should be monitored, and the regulations should be amended if it is deemed necessary by this evaluation.

As discussed in Chapter 2, the OECD’s Services Trade Restrictiveness Index (STRI) and Product Market Regulation (PMR) database indicate very high regulation in the services sector and across other sectors and regulatory areas. This is likely to be stifling technological adoption. Despite some liberalisation, restrictions are particularly prevalent in legal, accounting, telecommunication, and insurance services, with higher barriers to foreign investors’ entry and ampler command-and-control regulations than in regional trade partners. The scope for better regulation (i.e., more conducive to competition) is particularly great in areas such as network sectors, public procurement, governance of SOEs, and regulatory impact assessments (Chapter 2).

According to the World Bank Enterprise Survey, access to finance is the most commonly cited obstacle to doing business for SMEs in Indonesia (Figure 3.6). Digital enterprises are particularly affected as their assets are mostly intangible and hard to use as collateral. As of January 2024, lending to SMEs accounted for only 21% of all bank lending (and 7% of GDP). Credit constraints are amplified for female borrowers, who are more likely to lack collateral to secure loans, and for populations outside of Java. The main policy instrument, Kredit Usaha Rakyat (KUR), is a partial credit guarantee programme that helps to fulfil the collateral requirement hindering SMEs from accessing credit.

Though financial inclusion is improving, it remains a major socio-economic challenge in Indonesia. According to the Global Findex 2021, bank account ownership increased from 20% in 2011 to 52% in 2021, largely due to increasing mobile money account ownership. According to the 2022 National Survey of Financial Literacy and Inclusion (SNLIK), the level of financial inclusion (as measured by the use of financial products and services) has reached 85%. Also, around 75 million Indonesians made a payment through mobile phones in 2021, 33 million more than in 2014. While these advances are noteworthy, bank account ownership in Indonesia significantly lags behind the rest of East Asia-Pacific and lower-middle income country averages (as of 2021, 81% and 62%, respectively compared with 52% in Indonesia). Savers’ poor understanding of financial instruments and concerns surrounding online security and data breaches contribute to Indonesia’s poor ranking (World Bank’s Global Findex Database 2021).

The expansion of e-government (see previous sections) and the diffusion of digital wages can usefully prompt households to start using financial services. For instance, the digitalisation of government payments such as social assistance transfers will have motivated the opening of bank accounts. The switch to cashless payments by the two main transfer programmes (the conditional PKH and the education-focused PIP) has resulted in mass opening of saving accounts (World Bank, 2020[41]). Similarly, progress has been made in promoting digital wage payments according to an ILO report (2023[42]).

Government is pressing on with dedicated interventions, such as the National Strategy for Financial Inclusion 2020-2024 and the 2023 Development and Strengthening of the Financial Sector (P2SK) Omnibus Law. In addition, Indonesia has adopted stand-alone financial inclusion strategies for women and youth. Furthermore, women’s financial inclusion has improved substantially, resulting in their financial literacy index surpassing that for men in 2022. The strategy for youth includes a survey to better understand their financial behaviour and a programme for national youth ambassadors operating as influencers in universities and social media.

Fintech is among the sectors with considerable scope for growth in Indonesia. It has been growing rapidly, from 51 fintech players in 2011 to 334 by 2022 (Kumar et al., 2023[43]). One segment of fintech comprises businesses creating new payment mechanisms. Open banking services, which allow customers to share financial information securely across banks and other financial institutions, are also developing. There are reportedly 30 million borrower accounts, 60 million payments accounts and 9 million retail investor accounts. The expansion of fintech is bringing competition between traditional commercial banks and emerging players, such as P2P (peer-to-peer) lenders and digital banks. Fintech digital investment (e.g., robo-advisor) has also grown rapidly, although from a low base (IMF, 2024[44]).

Payment fintech is being facilitated by advances in technical regulation by Bank Indonesia (BI) in collaboration with the Indonesian Association of Payment Systems. In 2019 BI launched Payment System Blueprint 2025 that encouraged collaboration between banks and fintech; one measure was the introduction of QR (Quick Response) codes standards. Furthermore, BI is sponsoring the National Standard for Open API (Application Programme Interface) Payments (SNAP), which will further advance digital transactions. Lastly, there is a new BI initiative on digital currency (Proyek Garuda). Indonesia currently bans the use of cryptocurrencies as a means of payment but allows investment in them. BI aims to ensure the fast, safe, and affordable digital operation of the Rupiah.

Fintech can be encouraged further by maintaining regulatory clarity, shifting towards principle-based regulations, and supporting collaboration forums between regulators and fintech players. Also, strengthening regulatory sandbox programmes encourages experimentation. Sandbox programmes require attention to consumer protection and consumer feedback (concerning both the business idea and its regulation). Flexible regulation may also take the form of reduced financial-service licencing requirements, as in the Netherlands and the United Kingdom (these schemes usually impose a ceiling in terms of number of customers or sales).

Governments can facilitate the economy-wide digital transformation by digitalising processes and the services supplied to businesses and households (Sorbe et al., 2019[45]). Enhanced provision of e-government services can also strengthen fiscal revenue collection and expenditures allocation, improve public-sector efficiency, including in procurement. Individuals and businesses can benefit from more responsive, accountable, and efficient public services.

Indonesia has been making progress in introducing e-government. The pandemic prompted the introduction of digital administration in unemployment benefits, grants to the self-employed and to employers, and state-guaranteed loans. Also, the share of individuals using the internet to interact with public authorities increased rapidly during the crisis. However, Indonesia has considerable scope to further develop e-government services (Figure 3.7). In 2022, the United Nations E-Government Readiness Index ranked Indonesia as 77^th out of 193 countries.

Digital security, as elsewhere, is a growing issue, though data suggest incidents are less common than in some peer countries. A survey of cybersecurity managers found that only around 30% reported no cybersecurity incident in the past 12 months (Figure 3.8, Panel A). This share was somewhat higher in Korea but was even lower in some other countries in the region. An indicator of commitment to cybersecurity (Panel B) suggests the country is performing worse than most countries in the region. Data leaks have hit various large institutions, including some major banks and the social security agency (Habir and Negara, 2023[46]). In 2021, the National Cyber and Crypto Agency (Badan Siber dan Sandi Negara, BSSN) estimated the economic losses from cyberattacks at IDR 14.2 trillion (USD 860 million) (Sapulette and Muchtar, 2023[47]).

Indonesia currently does not have a specific cybersecurity law. Provisions on cybersecurity are mainly covered in Law No. 19 of 2016 on Electronic Information and Transactions and Government Regulation No. 71 of 2019 on the Implementation of Electronic Systems and Transactions. There are also some further implementing regulations issued by the National Cyber and Code Agency (Badan Siber dan Sandi Negara - BSSN).

Data leaks have hit various large institutions, including some major banks and the social security agency. Indonesia’s privacy policies include the 2022 Personal Data Protection bill (with a two-year transition period), which sets corporate fines (equal to up to 2% of annual revenue) for data breach. Individuals can be jailed for up to six years for falsifying personal data for personal gain or up to five years for gathering personal data illegally. Users are entitled to compensation for data breaches and can withdraw consent to use their data. The law draws inspiration from the European Union legislation, although the penalties are milder. To augment these legal provisions, consideration should be given to establishing an independent commission for data privacy and information provision along the lines, for instance, of those established in Australia and Singapore (Box 3.4).

Similar to elsewhere, Indonesia has developed an internet policy that, inter alia, aims to ensure data privacy and limit harmful content. One measure is the Minister of Communication and Informatics Regulation No. 5 of 2020 on Private Electronic System Operators (MR5), which became effective in 2022. The Regulation includes requirements for Internet platforms to register under new licensing rules that aim to protect consumer data and ensure that online content is used in a “positive and productive” way and no content is available which “disturbs public order”. The Regulation also includes a provision allowing the government to demand access to electronic data without needing a court order.

Digitalisation has progressed well in several policy areas. As discussed in Chapter 1, one such area is taxation. In public healthcare, the SatuSehat (One Health) platform, which was initially developed in 2020 for contact tracing and managing vaccination records, now includes telemedicine functions for virtual doctor visits, enables patients to store their health records, and tracks treatment adherence. In addition, digitalisation has helped BPJS Kesehatan, the single-payer national health social security programme, to extend coverage, from 133 million users in 2014 to 262 million in late 2023. SatuSehat’s roll-out to cover more than 30 000 health facilities across the country should be accelerated and information systems, research, and health development should be better integrated (World Bank, 2024[48]).

Digitalisation of the judicial system has been underway for some time, including online trials and a digital whistleblowing and oversight system (Support to the Justice Sector Reform in Indonesia, SIWAS). However, digitalisation does not necessarily resolve systemic shortfalls of the legal system, such as those in transparency, integrity, and accountability: sometimes it can amplify them. Given this, clarity should be ensured in the interpretation of the principle of “open trial to the public” in the context of online trials (UNODC, 2021[49]).

Indonesia began developing digital procurement in the early 2000s. The National Public Procurement Agency (LKPP) has expanded its LPSE (Electronic Procurement Services) system across the country. According to a report by the Asian Development Bank (2022[3]), LKPP was allocating about 86% of the procurement budget through electronic channels, with savings estimated at more than USD 10.7 billion in the 2015-18 period. However, similar to digitalisation in other areas, structural problems are not necessarily resolved. For instance, digitalisation can facilitate the opening up of procurement to SMEs, disadvantaged groups and local suppliers but may then require attention to quality safeguards.

With more transactions moving online, digital identity (ID) systems are gaining in importance. These systems allow people to securely, and conveniently, verify their identity to both government and private sector firms. In this regard, Indonesia has been consolidating the National ID (KTP), a unique number obtained at birth, with the Tax Identification Number, created upon registration in the tax system. The combined system, e-KTP, is accessed via a smartphone app. As of end-July 2023, 57.9 million accounts have been integrated, accounting for 82% of individual taxpayers.

Roll out of a new digital identity card is underway that is designed to eventually replace the e-KTP system. The Digital Population Identity (IKD) uses a single sign on (SSO) identifier and provides access to government services online. The IKD app can be used as a "digital wallet" to store identity documents, such child identity cards and birth certificates. The government is looking into adding features that support vulnerable communities, such as the elderly or people with disabilities. Take-up of the service has been sluggish: at end-2023, less than 8 million people had activated their IKD apps. As evidenced in other countries, the use of digital identity has been instrumental in a comprehensive e-government (Box 3.5).

There remains considerable scope for further co-ordination across government data and consolidation of online services. Co-ordination issues have arisen partly because Ministries have been launching digital initiatives somewhat independently. The Ministry of Communications and Informatics (Kominfo) estimates that there are 27 400 government online applications. The establishment of the SPBE (Electronic-Based Government System) Coordination Team is welcome but there are significant challenges (World Bank, 2022[51]). The scale of the data governance structure illustrates the challenges with data and metadata standardisation (Tjondronegoro et al., 2022[52]). There are currently 632 data trustees, including 84 ministries and agencies in 34 provinces. Low participation in data registration and discrepancies between data requirements and production hinder implementation of efforts to link up and standardise data. Further, policies are not fully harmonised between the central and regional levels of government and database experts are in short supply.

Successful digital transformation can be helped by awareness-raising and educational activities, both within public administration and towards the general public. In this regard, the strong commitment of political leadership determines the success of the entire process. Development of a comprehensive national digital transformation agenda would help, along with tasking a central government authority to spearhead the necessary political and bureaucratic support across multiple ministries.

Similar to other countries, Indonesia is making more government data publicly available. This is motivated, inter alia, by a desire to encourage innovative data-based services and research. In 2019 a set of data harmonization regulations (Satu Data Indonesia) was introduced that strengthens the shareability, accuracy, timeliness, and accountability of data sets in government ministries and agencies. An online portal (data.go.id) provides access to the harmonized data. The data has, for instance, been used to identify fraud and corruption in government procurement and other budget processes. Government is collaborating with the National Research and Innovation Agency (Badan Riset dan Inovasi Nasional, BRIN) to optimise the use of open government data. As more open data in machine-readable format becomes available, initiatives are planned to engage community and neighbourhood groups. An influential and pioneering experience has been Pulse Lab Jakarta, founded in 2012 as a partnership between the United Nations and the government of Indonesia (Julliand, Sumadi and Karetji, 2021[53]) and upgraded in 2022 into a regional open data hub.

However, progress in achieving wider goals in open government has proved challenging. As a partner country of the Open Government Partnership (OGP), Indonesia sets action plans on open government. The sixth OGP National Action Plan (2020–2022) included 24 commitments. An assessment of progress concluded that only half had been completed or substantially implemented. Moving forward, it will be important to reinforce government implementation commitment, for instance in the form of presidential decrees, to ensure priority budget allocations. The seventh Action Plan (2023–2024) includes commitments on open contracting, access to justice, and combatting sexual violence.

A whole-of-government policy approach for data management reduces fragmentation and facilitates cross-sectoral data sharing. Through Satu Data Indonesia has the key elements of data management. However, implementation is still at a preliminary stage. In practice, the availability of reliable data varies widely across government departments and the lack of data standards and interoperability hampers efforts to make government action more effective (Islami, 2021[54]).

Levels of both general and digital-specific education and skill influence the development of digitalisation. These are also drivers of digital divide. In Indonesia, there remain sizeable shares of the population with relatively low education attainment and correspondingly low engagement with digital technologies.

Shortfalls in the general level of education limit the capacity of the population to use digital tools and services and hinder Indonesia’s capacity to reap the benefits of digitalisation. The OECD’s PISA scores highlight the issues (see Chapter 2). Furthermore, Indonesian student skills seem particularly weak in subjects most relevant for ICT and the digital economy. Almost no students in Indonesia were classified as top performers in mathematics, compared to an OECD average (9% of students) which is itself much lower than in the six Asian countries and economies participating in PISA (OECD, 2024[55]). As discussed in detail in the previous Survey (2021[56]), misalignments of training offer with labour market add to the problem of shortfalls in generic skills. The misalignment is possibly even larger in the case of specific digital skills.

Studies point to significant skill shortages in ICT-related employment in Indonesia and limited digital skills in the workforce. According to (ILO, 2021[57]), Indonesia’s ICT sector employed an estimated 1 million workers in 2020, with an additional 500 000 working as ICT professionals and technician roles across all sectors that use ICT. Shortages are particularly acute for jobs such as web developer/web programmers and graphic designers. (AWS/AlphaBeta, 2021[58]) estimate that around 75% of Indonesian workers are digitally illiterate. A study by SMERU, Oxford, and UNESCAP (2022[59]) estimates that fewer than 1% of Indonesian workers have advanced digital skills. It is telling that, while more than 96% of Indonesia’s training institutions believe that their graduates are job-ready, barely a third of employers share this view (Jagannathan and Geronimo, 2021[60]). Furthermore, women are severely underrepresented in Indonesia’s tech industry. According to a 2020 report by McKinsey, women make up only 27% of the digital workforce, while the 2020 report by Women in Tech in Indonesia shows women hold only 12% of executive positions in ICT firms.

Technology and integration have increased the demand for higher-order general cognitive skills – such as complex problem-solving, leadership, critical thinking, and advanced communication – that are transferable across jobs. Therefore, modern tertiary education needs to cultivate in students a minimum threshold of foundational skills. The additional year of general education that was added to undergraduate programmes in China and Hong Kong in 2012 seems to have yielded some positive results (Lam, 2022[61]).

Government needs to continue campaigns to strengthen skills training in the workforce. Less than 10% of firms provide training to workers, compared with almost one-third in East Asia (World Bank, 2023[62]). The government has launched a three-tier strategy to boost training for the digital economy. For professionals and managers there is a national scholarship (DTS) and the Digital Leadership Academy. The Pre-Employment Card Program (Kartu Prakerja) targets job seekers, workers affected by layoffs, and/or workers in need of skills training. It offers skills training, upskilling, and reskilling, with a focus on digital skills. Skills for Jobs Indonesia, launched in January 2023 in partnership with Microsoft, provides free-of-charge digital literacy, hard and soft skills, and job preparation training. Looking forward, priority should be put on improving the quality and relevance of training programmes being delivered at the local level, with more industry involvement, including through apprenticeship programmes to promote training (OECD/ADB, 2020[63]).

Stronger training incentives for employers and individuals should be considered. Several OECD countries encourage workplace training via subsidies or tax breaks for employers (OECD, 2022[23]). More such measures should be considered in Indonesia. In addition, incentives for individuals to take up training should be strengthened. For instance, personal account schemes allowing individuals to accumulate time for training can help overcome time constraints for taking training courses. France has been using such accounts, enabling employees to use training hours to acquire recognised qualifications or basic skills (Perez and Vourc’h, 2020[64]). Such systems need strong guidance to ensure training is in relevant labour market fields. They also need to subject training providers to robust quality assurance, and regularly evaluate the programmes.

Indonesia is rolling out a major education reform that relies on the use of digital teaching tools. The reform, Merdeka Belajar (Freedom to Learn), was launched in 2021 (see Chapter 2 for further details) entails teachers using a digital platform Platform Merdeka Mengajar (Emancipated Teaching Platform) that includes tutorials and resources on the new curriculum along with management and planning tool. A programme that trains “learning leaders” is used as part of the campaign to ensure teachers are familiar with the new system.

Education policy also aims to increase use of ICT in vocational education and training. Specific projects include the development of two systems of ICT-based learning media, PembaTIK and MembaTIK, the former specifically for teachers and latter for the general public. Another example is Rapor Pendidikan (Education Scorecard), a platform that provides performance information and helps schools and teachers to refine their teaching methods.

Rolling out digital education tools is particularly challenging in Indonesia. Teachers often lack the appropriate skills. In 2020, 67% of teachers reported difficulties in operating devices and using online learning platforms (UNICEF, 2021[65]). Furthermore, training programmes to address this issue are often inadequate (Yarrow et al., 2022[66]) and teacher absence from training can be high. Many schools do not have internet connections. Only 55% of schools operating under the Ministry of Education and Culture have some form of internet connection, for instance.

Several reports underscore shortfalls in the number of government employees with strong digital skills (SMERU/GIZ/BGS, 2023[67]). Less than one in every 400 government employees have professional digital skills (Pranata Komputer, or Prakom, functional positions) and vacancies for Prakom posts are often not filled. Retention is challenging due competition from the private sector. Increased use of external services would help resolve this issue along with provisions for higher wages in government posts with hard-to-fill openings.

All over the world, digitalisation is changing the nature of work (OECD, 2023[68]). It is producing the automation of some tasks, creating new types of tasks, shifts to more flexible forms of employment (such as “gig economy” work) and new flexibilities in working practices. Employers are demanding specific skills and the design of labour market, education and training policies should respond effectively to current and forthcoming challenges. Among the digital occupations, software developers, programmers and engineers, data scientists and data engineers have experienced some of the most notable rates of growth in most countries (OECD, 2022[69]).

Recent OECD research finds that 27% of jobs in Indonesia are in occupations at high-risk of automation (including from AI). A McKinsey report (Das et al., 2019[70]) estimates that in Indonesia about 16% of the total hours worked could be automated, but also concludes that job losses would be more than compensated for by new labour demand. Working from home is particularly appealing in Indonesia’s large cities, especially Jakarta, as commuting times are long. Estimates of the average commuting time in Jakarta range from 80-120 minutes (Suharto, Kusuma and Wijaya, 2021[71]). Digital technologies also lie behind the rise of the gig economy (Permana, Izzati and Askar, 2022[72]). Approximately 2.3 million Indonesians are estimated to provide services where digital platforms have become important, such as accommodation and transportation.

Alongside the benefits in terms of productivity and flexibility, digitalisation brings risks for employees. Moreover, awareness of social protection among gig-workers, mostly as ride-hailing drivers, food delivery riders and couriers, is scarce. In this regard, BPJS Kesehatan could cooperate further with online application-based companies to disseminate the importance of contributing to social security for such workers. As regards working from home, Indonesia faces similar issues as elsewhere with concerns about isolation, lack of team engagement, and occupational safety and health.

Governments can support adjustment to digitalisation by ensuring good-quality labour market information services and support. In this regard the government has built SIAPkerja, a digital system that integrates all services related to employment, including skills training, job placement and industrial relations. Similar initiatives to upgrade labour market services are undertaken in countries such as Spain, India, Uruguay, Morocco, and the Netherlands (OECD/ADB, 2020[63]). In addition, Indonesia has integrated the Social Security Provider for Employment (BPJS Ketenagakerjaan) which manages the cash benefit payment, with the national job platform Karirhub-Sistem Informasi Ketenagakerjaan (Karirhub-Sisnaker).

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