Ov e rv i e w Time to ACT Realizing Indonesia’s Urban Potential Mark Roberts, Frederico Gil Sander, and Sailesh Tiwari, Editors Overview Time to ACT Realizing Indonesia’s Urban Potential Mark Roberts, Frederico Gil Sander, and Sailesh Tiwari, Editors This booklet contains the overview, as well as a list of contents, from the forthcoming book, Time to ACT: Realizing Indonesia’s Urban Potential, 10.1596/978-1-4648-1389-4. A PDF of the final, full- length book will be available at https://openknowledge.worldbank.org/ and print copies can be ordered at https://publications.worldbank.org/. Please use the final version of the book for citation, reproduction and adaptation purposes. © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 22 21 20 19 This work is a product of the staff of The World Bank with external contributions. 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Contents Contents of the Full Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 By 2045, 220 million Indonesians will live in urban areas . . . . . . . . . . . . . . . . . . . . . . . 2 Delivering on the promise of urbanization requires managing congestion forces. . . . . . . 4 Policies to realize Indonesia’s urban potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Annex OA Tailored policy options by type of place. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 iii Contents of the Full Book Foreword Acknowledgments Abbreviations Overview By 2045, 220 million Indonesians will live in urban areas Delivering on the promise of urbanization requires managing congestion forces Policies to realize Indonesia’s urban potential Annex OA Tailored policy options by type of place Notes References Introduction Defining prosperity, inclusiveness, and livability A framework for assessing urbanization A reader’s guide to this report Notes References Part 1  Indonesia’s Urban Trends and Performance 1 Patterns of Urbanization and Structural Transformation Measuring urbanization in Indonesia Recent urbanization trends in Indonesia Indonesia’s evolving “portfolio of places” v Looking forward Annex 1A BPS’s composite scoring system for identifying urban settlements Annex 1B Urban population growth decomposition methodology Annex 1C Multidistrict and single-district metro areas in Indonesia, by island-region, sorted by metro area total population Notes References 2 Is Urbanization Delivering? What should urbanization deliver? Is urbanization in Indonesia delivering prosperity for all? Is urbanization in Indonesia delivering livability for all? Urbanization’s potential to deliver more benefits Notes References 3 Drivers of Productivity and Prosperity across the Portfolio of Places The cross-district relationship between prosperity and average productivity What explains urban productivity? The importance of differences in underlying productivity Underlying productivity highest in multidistrict metro core and single-district metro area districts, followed by urban periphery districts Understanding agglomeration forces and how tailored policies can improve productivity Varying effects of the business environment on productivity Conclusion and policy implications Annex 3A Construction of the domestic market access variable Annex 3B Determinants of underlying productivity Annex 3C Effects of the local business environment on firm productivity Notes References 4 Drivers of Urban and Spatial Inclusion Determinants of between-place inequality Determinants of within-place inequality Conclusion Annex 4A Methodology to analyze spatial disparities Annex 4B Returns to aggregate human capital Annex 4C Returns to aggregate human capital by skill level Notes References Spotlight 1  Strengthening the Disaster Resilience of Indonesian Cities How exposed are Indonesian cities to disasters? A look ahead What are the drivers of urban disaster risk? What needs to be done: A holistic approach to urban disaster resilience Notes References vi  TIME TO ACT Spotlight 2  Urbanization for Human Capital Indonesia’s low score on the human capital index Human capital across places Urbanization policy sensitive to human capital References Part 2  How Can Urbanization in Indonesia Deliver More? 5 Urban Governance, Institutions, and Finance Urbanization in the context of Indonesia’s decentralization Why don’t Indonesian cities deliver more and better urban services and infrastructure? Opportunities and policy options Annex 5A Evolution of decentralization Notes References 6 Infrastructure and Policies to Connect the Portfolio of Places Lower aggregate infrastructure investment since the 1997 Asian crisis Problems arising from the spatial targeting of infrastructure investment under decentralization Implications for productivity Barriers to migration Infrastructure, the decentralization conundrum, and the need for coordination Annex 6A Aggregate infrastructure investment and stock data Annex 6B Econometric methodology Annex 6C Results of the econometric model Notes References 7 Connected and Integrated Cities: A Focus on Housing and Transport Planning for connected growth Housing and transport: Key sectors for urban connectivity and integration Conclusion Notes References 8 Targeting Places and People Left Behind Characterizing lagging places in Indonesia Place-based policies in Indonesia Rethinking place-based policies in Indonesia Targeting people left behind Notes References Spotlight 3  The Invisible Crisis of Wastewater Management in Indonesia The consequences The causes What can be done? C o n te n ts of t h e F u l l B oo k   vii Notes References Spotlight 4  The Potential of Smart Cities Livability Inclusiveness Prosperity Implications for Indonesia Notes References viii  TIME TO ACT Foreword Indonesia, the world’s fourth most populous classifying the different types of urban and country, is becoming increasingly urban. rural places across the country. The face of Today over half of the population lives in cit- urbanization ranges from large, thriving ies and towns; by 2045, the centenary of metropolises spanning multiple districts such Indonesia’s independence, nearly three-­ as Jakarta and Bandung (“multi-district quarters will. Urbanization promises a better metro areas”) to smaller metropolitan areas, life for Indonesians: around the world, major such as Lampung (“single-district metro global cities are centers of economic prosper- areas”), and even smaller towns such as ity and desirable places to work and live. No Manado and Ambon (“non-metro” urban large country has ever reached high-income areas). Distinctions are also made between the status without also becoming urbanized. experiences of Indonesians living and work- Although urbanization has been, on bal- ing in city centers (“cores”) and those who ance, a positive force in Indonesia, the coun- live on the outer edges of metropolitan areas try can do more to fully reap its benefits. For (“peripheries”). every one percent increase in the level of Drawing on a wide range of data sources, urbanization, Indonesia’s income per capita Part 1 of the report takes stock of the extent has risen less than in other developing coun- to which urbanization in Indonesia has deliv- tries in East Asia and the Pacific. And even ered on three key outcomes—prosperity, with over half of the population residing in inclusiveness, and livability. Indeed, the bene- urban areas, Indonesia remains a lower-­ fits of urbanization are tangible and substan- middle-income country. What can policy tial: urban areas are more productive and makers do to ensure that the promise of provide better access to services and infra- urbanization is realized in the most effective, structure, on average, compared to rural inclusive, and sustainable manner? areas. However, not all places and all people This report explores the challenges and have benefitted to the same degree. The gap opportunities associated with Indonesia’s between rich and poor has risen within all urbanization. Honoring the diversity of the types of places, and disparities in well-being archipelago, the report offers a novel way of between metro and non-metro areas remain ix large by international standards. Even within expanding options for subnational financing metro areas, those living on the fringes have to meet basic infrastructure and service needs; more difficulties accessing amenities than building local capacity to better plan, imple- those living in the core. Furthermore, many ment, and finance urban development; and urban areas in Indonesia are strained by con- improving institutional coordination across gestion forces: choked roads, polluted air and all levels of government and across jurisdic- slums are common phenomena, even in some tions. In addition to these reforms, specific smaller cities. actions in the policy areas of housing and While cities everywhere face challenges of transportation can help to spread the benefits congestion and inequality, good policies can of urbanization within and across places. help shape the future of Indonesia’s urban The report recognizes that no one-size-fits- areas for the better. Part II of the report pro- all approach can tackle the challenges faced poses three basic policy principles for by Indonesia’s diverse “portfolio of places” Indonesia to leverage the promise of urban- and hence offers tailored advice to policy ization: Augment, Connect, and Target makers. Regardless of the approach, now is (“ACT”). Augment refers to expanding and the time to ACT to ensure that Indonesia ben- equalizing access to high-quality basic ser- efits fully from urbanization. As more and vices across all places, both urban and rural. more Indonesians settle in urban areas, it will Connect refers to enhancing the connections become increasingly difficult and costly to between places and between people and jobs, alter the trajectory of urbanization. This opportunities, and services. Target refers to report hopes to help policy makers chart a addressing persistent inequalities across roadmap of integrated, coordinated actions regions and groups of people that may endure that will foster prosperous and livable cities even if the first two policy principles were that can be enjoyed by all Indonesians. fully enacted. Key to implementing the ACT principles Rodrigo A. Chaves are institutional reforms to subnational Country Director, Indonesia and Timor-Leste g overnance and finance. These include ­ The World Bank x  TIME TO ACT Acknowledgments This report was prepared by a team led by The Spotlights in the report were prepared Mark Roberts, Frederico Gil Sander, and by Zuzana Stanton-Geddes and Yong Jian Sailesh Tiwari. The core team of chapter Vun (Spotlight 1), Sailesh Tiwari (Spotlight 2), authors also consisted of Mulya Amri, Judy Christophe Prevost (Spotlight 3), and Natsuko Baker, Souleymane Coulibaly, Nancy Lozano Kikutake (Spotlight 4). The report was also Gracia, Jane Park, Giuliana De Mendiola informed by a series of background papers. Ramirez, Stephane Straub, and Pui Shen Authors and contributors to these background Yoong. Other important contributors included papers who have not already been named Marcus Lee, Matthew Wai-Poi, David Ingham, include Hamidah Alatas, Maarten Bosker, Gayatri Singh, Christopher Crow, and Massimiliano Cali, Keerthana Chandrashekar, Jonathan Hasoloan. The work was conducted Sheng Fang, Taufik Hidayat, Claire Hollweg, under Victoria Kwakwa (Vice President, East Vitalijs Jascisens, Jonathan Lain, Ririn Salwa Asia and Pacific [EAP] region) with the g ­ eneral Purnamasari, Mayla Safuro Lestari Putri, guidance of Rodrigo Chaves (Country Husnul Rizal, Alexander Rothenberg, Audrey Director, Indonesia), Abhas Jha (EAP I Sacks, Imam Setiawan, Akhmad Rizel Shidiq, Practice Manager for Urban and Disaster Risk Della Temanggung, and Lixin C. Xu. Empirical Management), Ndiame Diop (EAP Practice work for the report was underpinned by an Manager for Macroeconomics, Trade and extensive subnational database for Indonesia Investment), and Salman Zaidi (EAP Practice that was developed by Ratih Dwi Rahmadanti, Manager for Poverty and Equity). Further Lourentius Dimas Setyonugroho, Abigail guidance was provided by Taimur Samad, Ho, and Pui Shen Yoong, with help from Kevin Tomlinson, and Stephan Garnier. The Katie McWilliams, Benjamin Stewart, Jane report was requested by the Government of Park, Brian Blankespoor, Massimiliano Cali, the Republic of Indonesia and prepared in Taufik Hidayat, Muhammad Hazmi, and close collaboration with both Indonesia’s Shiyan Zhang. Ministry of National Development Planning / The team was fortunate to receive excel- National Development Planning Agency lent advice and guidance from the following (Bappenas) and its Ministry of Finance. peer reviewers at various points in the report xi preparation process: Peter Ellis, Samuel Bruce Ross-Larson was the principal edi- Freije-Rodriguez, Bert Hofman, Somik Lall, tor, working with his Communications Sandeep Mahajan, Barjor Mehta, and Martin Development Incorporated colleagues Meta Rama. Although we are very grateful for the de Coquereaumont and Joseph Brinley, and guidance received, these reviewers are not Joe Caponio was the production editor, responsible for any remaining errors or omis- working with Mike Crumplar. Patricia sions. Additional insights from Sudhir Shetty, K a t a y a m a , f r o m t h e Wo r l d B a n k ’s Vivi Alatas, Camilla Holmemo, Adri Asmoro Development Economics Strategy and Laksono Poesoro, Nicholas Menzies, Operations unit, and Mary Fisk and Yaneisy Wicaksono Sarosa, Daniel Van Tuijll, Martinez, from the Bank’s formal publishing Kathleen Whimp, Thalyta Nandya Yuwono, unit, were responsible for the design, typeset- Alanna Simpson, Abigail Baca, Brenden ting, printing, and dissemination of both the Jongman, and Andrew Mason are also grate- hard- and soft-copy versions of the report. fully acknowledged. Last, but not least, we thank Inneke Herawati In preparing the report, the team benefited Ross, Marleyne (Alin) Danuwidjojo, and from feedback received during several work- Rebekka Hutabarat for unfailing administra- shops that were organized in Indonesia in col- tive support. laboration with Bappenas and the Ministry of This work received financial support from Finance. These workshops involved partici- the Swiss State Secretariat for Economic pants from a wide range of central govern- Affairs (SECO) through the Indonesia ment ministries and agencies, as well as from Sustainable Urbanization Multi-Donor Trust city governments, academic institutions, and Fund (IDSUN MDTF) and from the research think tanks. Australian government through the Local The team is also grateful for the support Solutions to Poverty (LSP) and Partnership provided by senior management of the World for Knowledge Based Poverty Reduction Bank’s Social, Urban, Rural and Resilience; (PKPR) trust funds. Macroeconomics, Trade and Investment; and Poverty and Equity Global Practices. May 2019 xii  TIME TO ACT Abbreviations ACT augment, connect, target AP1 Angkasa Pura 1 AP2 Angkasa Pura 2 ATR/BPN Kementerian Agraria dan Tata Ruang/Badan Pertanahan Nasional (Ministry of  Agrarian Affairs and Spatial Planning / National Land Agency) Bappenas Badan Perencanaan Pembangunan Nasional (Ministry of National Development Planning/National Development Planning Agency) BNBP Badan Nasional Penanggulangan Bencana (National Disaster Management Authority) BPS Badan Pusat Statistik (Statistics Indonesia) BRT bus rapid transit BSPS Bantuan Stimulan Perumahan Swadaya (Self-Help Housing Stimulus) CAGR compound annual growth rate DKI Jakarta Daerah Khusus Ibukota Jakarta EMS energy management system FLPP Fasilitas Likuiditas Pembiayaan Perumahan (Housing Loan Liquidity Facility) GDP gross domestic product GHSL Global Human Settlement Layer HCI human capital index HRD-FP high-resource districts in favored provinces HRD-UP high-resource districts in unfavored provinces IFLS Indonesia Family Life Survey INPRES instruksi presiden (presidential instruction program) xiii KAPET Kawasan Pengembangan Ekonomi Terpadu (integrated economic development zone) KK Kartu Keluarga (identification card) KTP Kartu Tanda Penduduk (identification card) LRD-FP low-resource districts in favored provinces LRD-UP low-resource districts in unfavored provinces LSCI Liner Shipping Connectivity Index MOHA Ministry of Home Affairs PISA Programme for International Student Assessment PODES Potensi Desa (Survey of Village Potential) PPP public–private partnership Rp Indonesian rupiah RPJMD Rencana Pembangunan Jangka Menengah Daerah (district-level medium-term development plan) RPJMN Rencana Pembangunan Jangka Menengah Nasional (national medium-term development plan) RT Rukun Tetangga (neighborhood association) RTBL Rencana Tata Bangunan Lingkungan (local-level urban design guidelines) RTRW Rencana Tata Ruang Wilayah (district-level spatial plan) SAKERNAS Survei Angkatan Kerja Nasional (National Labor Force Survey) SDG Sustainable Development Goal SEZ special economic zone SI Survei Industri (Industrial Survey) SIM subscriber identity module SNG subnational government SSB Subsidi Selisih Bunga (Interest Rate Buy-Down Subsidy) SSL sector-specific law SUSENAS Survei Sosial Ekonomi Nasional (National Socio-Economic Survey) TFP total factor productivity UNCTAD United Nations Conference on Trade and Development xiv  TIME TO ACT Overview Indonesia stands as a country transformed by The unprecedented growth of urban areas has urbanization. When its independence was given rise to negative congestion forces, associ- p roclaimed in 1945, only one in eight ­ ated with the pressure of urban populations on Indonesians lived in towns and cities, and the infrastructure, basic services, land, housing, and country’s entire urban population stood at the environment, that are undermining the liva- about 8.6 million, roughly equal to that of bility of cities and dampening the prosperity London today. By contrast, today about gains from urbanization. 151 million, or 56 percent, of Indonesians live Put differently, urbanization has not in urban areas, roughly 18 times the popula- f ulfilled its potential to drive sustainable ­ tion of London.1 improvements in prosperity, inclusiveness, As Indonesia has urbanized, so has it and livability in Indonesia. This, in turn, can climbed the ladder of development and be traced to a failure to adequately ACT: ­ prosperity. Since 1950, average gross domes- tic product (GDP) per capita has increased •  Augment the coverage and quality of basic almost ninefold in real terms, and the average services and urban infrastructure to better Indonesian today enjoys a standard of living manage congestion forces and address far surpassing that of previous generations.2 large disparities in human capital out- In part, a more prosperous Indonesia today is comes both across and within places. due to the productivity benefits that arise •  Connect urban areas of different sizes with from urban agglomeration and the associated each other, with surrounding rural areas, transformation from an agrarian society to and with international markets—and to one more based on industry and services. connect people with jobs and basic services That climb, however, has been slower and within urban areas—to e ­ nhance inclusive- more arduous than the rapid pace of ness both within and among areas. urbanization. Hence, Indonesia remains a lower- ­ •• Target places and people that may be left middle-income country, and although almost behind by the urbanization process to ensure everyone has benefitted in absolute terms, the that they share in the prosperity benefits of relative gains from urbanization have been urbanization and that urban areas are uneven within cities and across the country. livable for everyone. ­ 1 To overcome these shortcomings and people—or more than 70 percent of its ensure that Indonesia gets the most out of population—will live in towns and cities. ­ urbanization, policy makers need to under- Because the urban environment is difficult take bold institutional reforms and imple- and costly to change once built, delays in ment decisive policies to ACT. This action will risk locking Indonesia further improvement involves reforming the ways into a suboptimal trajectory of urban devel- urban areas are governed and financed, opment. In the meantime, policy makers can with a focus on expanding options for do plenty to ensure that urbanization deliv- financing infrastructure and basic services, ers a prosperous and inclusive Indonesia of as well as improving coordination between livable cities. different levels and sectors of government and between districts that belong to a com- mon metropolitan area. It also involves By 2045, 220 million building stronger capacities to plan, imple- Indonesians will live in ment, and finance urban development. Across the board, it will be necessary to tai- urban areas lor many of the policy actions required to Although Indonesia urbanized rapidly in ACT according to the type of place—for the past, its current pace of urbanization example, according to whether an urban can be described as near “normal” or “typi- area is a large metropolis such as Jakarta or cal.” In the 1980s and 1990s, Indonesia’s Surabaya or a smaller, less connected urban urbanization growth rate averaged more area such as Bima. than 3 percent a year—faster than in other Even though such measures provide the developing East Asian countries at the time, foundations to ACT, they are unlikely to be including China.3 Since the turn of the cen- sufficient to connect people with jobs and ser- tury, however, the pace of urbanization has vices in urban areas, for which additional begun to slow, returning close to that seen policies and investments are needed. These in the 1950s and 1960s. Between 1990– include policies to facilitate the supply of 2000 and 2010–17, Indonesia’s pace of well-located affordable housing, better urban urbanization more than halved, lagging public transport, and the better management other countries in the region but in line of traffic within a framework of more effec- with its level of urbanization.4 When bench- tive urban and spatial planning. Adequately marked against the historical experiences of connecting urban areas with each other, with countries globally, the recent moderation surrounding rural areas, and with interna- represents a return to what can be regarded tional markets will also require addressing as a “typical” pace of urbanization for the key regulatory issues in transportation country (figure O.1). markets. In Indonesia, the urbanization process has Finally, making sure that no island and primarily been driven by the densification of no place are left behind will require settlements and their acquisition of infrastruc- Indonesia to rethink its approach to place- ture and amenities, leading to their reclassifi- based policies, putting a stronger emphasis cation from rural to urban,5 followed by the on human capital in the design of those pol- natural growth of population in urban areas. icies. A paradigm shift in urban planning These factors accounted for more than and design is also needed to ensure that all 80 percent of Indonesia’s urban population groups of society—especially women and growth between 2000 and 2010. By contrast, girls, the elderly, and people with disabili- net rural–urban migration contributed less ties—fully benefit from all that urban areas than 20 percent of overall urban population have to offer. growth.6 The role of migration in explaining To succeed, Indonesia needs to ACT now. urban population growth is relatively small By 2045, the centenary of Indonesia’s inde- in  Indonesia compared to India and espe- pendence, approximately 220 million cially China, where migration contributed 2  TIME TO ACT 56  percent of urban population growth FIGURE O.1  Indonesia’s post-2000 pace of between 2000 and 2010 (World Bank and urbanization is typical by international standards DRC 2014). The urban transformation has given rise to 10 y = –1.31 ln(x) + 6.05 a diverse and vibrant “portfolio of places” R2 = 0.36 Growth rate of urban share of population (%) (box O.1). Today, about 57 percent of 8 Indonesia’s urban population lives in metro- politan areas that span multiple districts 6 (“multidistrict metro areas”) or that comprise only a single district (“single-district metro 4 1980s 1990s areas”). The remaining 43 percent of the 1970s urban population lives outside metropolitan 2 1950s 2000s 1960s 2010s areas. 0 The experience of urbanization can differ not just between metropolitan and nonmetro- –2 politan areas, but even within each type of area. In multidistrict metro areas, for exam- –4 ple, many Indonesians live in the “periphery” 0 10 20 30 40 50 60 70 80 90 100 districts, commuting to the “core” to work Initial urban share of population (%) and to access services. These periphery areas All countries Indonesia Fitted line (all countries) can be predominantly urban or rural. Outside metropolitan areas, most Indonesians live in Source: Calculations based on data from the United Nations World Urbanization Prospects: 2018 “nonmetro rural” areas, but some also live in Revision database (https://esa.un.org/unpd/wup/). “nonmetro urban” areas—districts in which Note: Each data point shows the average growth rate of a country’s urban population share (that is, the share of its population that lives in urban areas) over a given period for its urban population share at the most of the population lives in small cities beginning of that period. The periods considered are 1950–60, 1960–70, 1970–80, 1980–90, 1990–2000, and towns that provide, for example, market 2000–10, and 2010–15; therefore, the figure contains seven observations for each of 231 countries. BOX O.1  Indonesia’s portfolio of places Four broad types of urban and rural places can predominantly rural (“rural periphery”), d be distinguished in Indonesia (figure BO.1.1).a where a predominantly urban district is one Multidistrict metro areas are large met- with at least 50 percent of the population liv- ropolitan areas, such as Jakarta, Surabaya, ing in urban settlements. Medan, and Makassar, with labor markets Single-district metro areas are kota districtse that cut across multiple districts, as defined with a population of at least 500,000 and aver- using commuting flow data. A multidistrict age population densities that resemble those of metro, in turn, consists of the following types multidistrict metro areas, but whose labor mar- of subareas: kets are largely confined within the boundaries •  Metro core corresponds to the district within of a single district. Examples include Palembang, the metro area that exhibits the highest average Pekanbaru, and Samarinda. population density,b except for Jakarta, where Nonmetro urban areas are districts that do the core is taken to be Daerah Khusus Ibukota not meet the criteria to be classified as either a (DKI, or special capital region) Jakarta.c single-district metro area or part of a multidis- •  Metro periphery corresponds to districts trict metro area, but within which most of the linked to the core through strong commuting population lives in urban settlements. Such dis- flows. Metro periphery districts can be either tricts may be either kota or ­ kabupaten. Thirty- predominantly urban (“urban periphery”) or two of 57 nonmetro urban areas are  kota. Box continued on next page O v er v ie w   3 BOX O.1 Continued FIGURE BO.1.1  Stylized depiction of the different types of place within the “portfolio of places” Nonmetro Metro Single-district urban core metro Urban periphery Rural periphery Nonmetro rural Examples include Cirebon, Manado, and of urbanization. On the basis of 1996 administrative boundaries, metro Medan contains three kota districts, two of which have 100 percent of their population Mataram. living in urban areas. Nonmetro rural areas are nonmetro dis- c. DKI Jakarta comprises six districts—Jakarta Pusat, Jakarta Barat, Jakarta tricts in which most of the population lives in Selatan, Jakarta Timur, Jakarta Utara, and Kepulauan Seribu. d. For brevity, we refer to “predominantly urban” and “predominantly rural” rural settlements. The majority (354 of 377) are periphery areas as simply “urban periphery” and “rural periphery” in the ­ kabupaten. Examples include Kabupaten Ciamis, remainder of this overview. However, it is important to remember that a Kabupaten Kampar, and Kabupaten Kupang.f predominantly urban area may still have a large rural population, and vice versa. e. There are two types of districts in Indonesia—kota and kabupaten. Kota translates as “city,” while kabupaten designates what has traditionally been a. For a more detailed description of the methodology used to derive these considered a rural district. typologies see chapter 1 and Park and Roberts (2018). f. Collectively, these areas still possess a large urban population, which lives b. Except for metro Medan, the identification of metro cores is robust to other mostly in smaller cities and towns that may act more as local market centers. criteria for their selection, such as a district’s status as a kota and its level In 2016, nonmetro rural areas had a collective urban population of 37 million. centers for agricultural output produced in surrounding rural settlements. Delivering on the promise Whereas urbanization is at an intermediate of urbanization requires stage for Indonesia as a whole, as well as for managing congestion the Jawa-Bali region, it is still at an incipient stage in the rest of the country. 7 By 2045, forces when Indonesia will celebrate the centenary Urbanization can boost economic prosperity. of its independence, approximately 220 mil- This is because urbanization fosters positive lion people—or more than 70 percent of its agglomeration forces, creating an environment population—will live in towns and cities. The that is conducive to innovation and enhanced promise of urbanization is that this process productivity. As people and firms cluster in can lead to a more prosperous and inclusive settlements, it becomes easier to match talent Indonesia of livable cities. to jobs, exchange ideas and knowledge, share 4  TIME TO ACT FIGURE O.2.  Urbanization outcomes are jointly determined by the interplay of agglomeration and congestion forces Agglomeration forces Prosperity Outcomes Urban Inclusiveness growth Congestion Livability forces inputs, and access markets. With economies of connectivity between places, prosperity may scale, larger cities can provide more and better- remain largely “locked up” in the cores of quality services and infrastructure, because the metropolitan areas rather than being shared ­ fixed costs of doing so are spread over more more broadly. Likewise, disconnected growth beneficiaries. With greater mobility and con- within urban areas is associated with residen- nectivity among places, labor and capital can tial segregation between the high and the low be allocated more efficiently, creating more skilled. Such segregation exacerbates inequal- opportunities for people to prosper. ity, hampers the ascension of the poor to the Realizing the promise of urbanization, how- middle class, and reduces the strength of ever, requires managing negative “congestion knowledge spillovers. forces” that intensify as areas urbanize and that This report therefore assesses whether threaten to limit the benefits of agglomeration. urbanization in Indonesia has delivered pros- These congestion forces arise from the pressure perity, inclusiveness, and livability. Figure O.2 of urban populations on basic services, infra- describes the report’s analytical framework. structure, land, housing, and the environment. The failure to adequately manage these forces gives rise to, among other things, grid-locked Urbanization has led to prosperity in streets, slums and overcrowded housing, and Indonesia, but has not reached its full potential inequitable access to good schools and hospi- tals. Such congestion forces directly undermine To some extent, urbanization and economic the ­livability of urban areas, reducing their prosperity have gone together in Indonesia. attractiveness as places to live and work. They Districts with higher shares of their popula- also undermine human capital accumulation tions living in urban settlements have higher and encourage urban areas to sprawl outward, per capita incomes. This is partly due to better with negative implications for knowledge spill- labor market opportunities in urban areas, overs and other prosperity-enhancing agglom- which offer more jobs in industry and services eration forces. than rural areas. These sectors tend to gener- Not everyone may benefit from the prosper- ate more formal, better-paid, and stable jobs ity and livability generated by urbanization. than those in the agricultural sector. In many countries around the world, larger cit- Consistent with the existence of positive ies are more unequal, while some cities lead agglomeration forces, workers in more urban and others lag. The benefits of urbanization areas are also more productive, and thus better may also fail to spill over to those who remain paid, than otherwise identical workers in less in the countryside, creating widening gaps urban areas. A person who works in a multi- between urban and rural areas, which can district metro core or a single-district metro threaten social cohesion. Along with invest- area earns 25 percent more than a comparable ments aimed at the universal provision of basic worker—of the same age, gender, marital sta- services, the inclusiveness of urbanization rests tus, and education level—who is employed in on connectivity both across and within places, the same industry in a nonmetro rural area. and therefore on integration. Without a ­ dequate Workers in urban periphery areas also enjoy a O v er v ie w   5 FIGURE O.3  Workers in more urban areas earn similar, albeit slightly smaller, “wage premium” higher wages than comparable rural workers due to their greater productivity (figure O.3). Better economic opportunities in 30 more  urban areas have also helped many 25.4 25.4 Indonesians escape poverty. Rates of poverty 25 and vulnerability to poverty in multidistrict Wage premium over nonmetro rural (%) 20.7 20 metro cores, urban peripheries, and single-­ 15 district metro areas are substantially lower than 10.7 those in nonmetro rural areas (figure O.4). 10 Nonetheless, significant pockets of poverty 5 2.4 persist in urban areas, as reflected by the ­ 0 38 ­percent of the population—equivalent to Metro Single-district Urban Nonmetro Rural 21.5 million Indonesians—in nonmetro urban core metro periphery urban periphery areas who are poor or vulnerable to poverty. Urban areas have also provided a robust Source: The wage premium was estimated using data from the August 2008–August 2015 rounds of pathway to the middle class. Nonmetro rural Indonesia’s National Labor Force Survey (SAKERNAS) following the methodology described in chapter 3. households that moved to multidistrict metro Note: The values reported in the figure are the average wage premium that workers in districts that belong to a given type of place command over observationally equivalent workers in areas have better prospects of becoming mid- nonmetro rural districts, controlling for the island-region that a district belongs to. A district’s dle class than those that moved to other rural wage premium is estimated using an augmented Mincerian wage regression (Mincer 1974) that areas. The odds of a migrant to a multidistrict controls for both the observable characteristics of workers (gender, marital status, age and its square, and educational attainment) and the jobs (industry of employment, average number of metro core entering the middle class have hours worked per week, and the length of the worker’s tenure with the current employer and its weakened since 2010, but the chances have square) they occupy. remained robustly high for those moving to FIGURE O.4  Better economic opportunities in urban areas have led to less poverty and vulnerability to poverty Metro core 3.1 13.9 Urban periphery 6.3 18.2 Rural periphery 11.2 23.4 Single-district metro 5.0 18.1 Nonmetro urban 11.4 26.1 Nonmetro rural 14.6 27.9 0 5 10 15 20 25 30 35 40 45 Share of population (%) In poverty Vulnerable to poverty Source: Calculations using data from Indonesia’s 2017 National Socio-Economic Survey (SUSENAS). Note: Poverty rates are based on official poverty lines of the government of Indonesia. Vulnerability is defined as having per capita household consumption above the poverty line, but below 1.5 times the poverty line. 6  TIME TO ACT urban peripheries. This finding suggests that FIGURE O.5  Urbanization has delivered less urban peripheries have retained the advan- prosperity in Indonesia than in the rest of the region tages of being close to the prosperity of the metro cores while avoiding the worst of the 3.5 costs of congestion. 3.0 3.0 Growth return, 1996–2016 (%) Notwithstanding these gains in prosperity, 2.7 Indonesia has not benefitted as much from 2.5 urbanization as some other East Asia and 2.0 Pacific (EAP) countries (figure O.5). Between 1.4 1996 and 2016, every percentage point increase 1.5 in the share of Indonesia’s population living in 1.0 urban areas was associated with a 1.4 percent increase in GDP per capita, but for developing 0.5 EAP countries, the corresponding increase in 0 GDP per capita was 2.7 ­ percent. For China, the China EAP-developing Indonesia “growth return” to urbanization was even higher, with every percentage point increase in Sources: Calculations based on data from World Bank World Development Indicators (http://datatopics​ the level of urbanization being associated with .worldbank.org/world-development-indicators/) and the United Nations World Urbanization percent increase in GDP per capita. a 3.0 ­ Prospects: 2018 Revision database (https://esa.un.org/unpd/wup/). Note: Figure shows the percentage increase in GDP per capita (constant 2011 international dollars) associated with a one-percentage-point increase in the share of population living in urban areas. EAP-developing refers to East Asia and Pacific countries excluding high-income countries, China, and Benefits of urbanization have spread, but Indonesia. inequality remains high, especially within places FIGURE O.6  Inequality has increased everywhere To what extent have all households in and remains highest in multidistrict metro cores Indonesia, regardless of where they live, been able to benefit from the prosperity that urban- 0.45 ization generates? Looking at real consumption per capita as a measure of welfare, households Gini coefficient, 2001–17 0.40 in more urban areas remain ­ significantly better- off than those in rural areas.8 Although the gap has narrowed over time, the level of welfare in 0.35 nonmetro rural areas remained 43 percent lower than that of Jakarta’s metro core (Daerah 0.30 Khusus Ibukota [DKI] Jakarta) in 2015. Rural periphery areas and nonmetro urban areas also welfare penalties of 35 percent and suffer large ­ 0.25 27 percent respectively, relative to DKI Jakarta. 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Urban periphery areas, by contrast, suffer a 20 Metro core Urban periphery Rural periphery much smaller welfare penalty—only 7 percent Single-district metro Nonmetro urban Nonmetro rural relative to DKI Jakarta—partly because of their proximity to the prosperity of the multidistrict Source: Calculations based on consumption data from Indonesia’s National Socio-Economic Survey (SUSENAS). metro cores. Note: Three-year moving average of Gini coefficient. Despite these large welfare disparities between urban and rural areas, the bulk of consumption inequality is accounted for by within all types of place and it is highest inequality within places.9 Indeed, within-place in exactly the most prosperous areas—that is, inequality accounted for nearly 86 percent of in multidistrict metro cores and their urban total inequality in 2017, up from 82 percent peripheries (figure O.6).10 in 2001. Moreover, since 2001, the gap That more prosperous places are more between the rich and the poor has increased unequal is not unusual. Globally, within O v er v ie w   7 countries, larger and more prosperous cities Uneven learning outcomes among children tend to be more unequal than smaller, less are a further indication that the benefits of prosperous, cities. This is true, for example, urbanization are not equally spread within cit- within both the United States and within Latin ies (figure O.7). Although children in urban American and Caribbean countries (Ferreyra areas generally have better access to schools 2018). In both cases, higher inequality in larger and average educational attainment is higher cities is driven by the fact that they are home to than in other types of area, children from lower- more-skilled populations. This phenomenon is income households appear to be falling behind. driven, in part, by the greater tendency of Looking at science test scores on the Programme skilled workers to migrate, which leads to their for International Student Assessment (PISA), being disproportionately concentrated in larger the gap between children in the bottom 20 per- cities, creating a larger spread of skills and thus cent of the socioeconomic distribution and wages in those cities. Furthermore, even though those in the top 20 percent is largest in cities.12 both low- and high-skilled workers might ben- In 2015, children in the top 20 percent scored efit from higher overall levels of human capital about 86 points higher than children in the bot- in larger cities, they may not do so equally, thus tom 20 percent in large cities, whereas in other further contributing to higher inequality. cities, children in the top 20 percent scored In Indonesia, as in the United States and 103 points higher. As this generation enters the other countries, more densely populated places labor market, such learning gaps may com- also have more highly educated workforces pound within-place inequalities, further limit- and hence are more productive. High-skilled ing the potential of urbanization to bring more workers also benefit more from being in such a prosperity to all Indonesians. place. Whereas a one-year increase in an area’s average years of schooling yields a 10 percent return in earnings for high-skilled workers, With better management of congestion the corresponding returns for medium- and forces, Indonesian cities can become more low-skilled workers are about 6 and 3 percent, prosperous and livable respectively.11 Larger cities therefore tend to be Around the world, people are drawn to the more unequal in Indonesia. bright lights of large cities, not only because of the better economic opportunities they offer FIGURE O.7  Learning gaps between the top and the but also because of the perceived excitement bottom socioeconomic groups are largest for cities that goes along with their bustle. However, with bustle also comes congestion of infra- 120 structure and markets that, without the right policies and investments, can undermine both top 20 percent and bottom 20 percent 102.6 Di erence in science scores between 100 livability and prosperity. In Indonesia, many 85.8 urban areas are showing signs of strain from 80 their inability to manage congestion forces. 67.0 Negative congestion forces are especially prev- 60 alent in multidistrict metro cores and single- 40.4 district metro areas, which suffer from a lack of 40 29.6 affordable housing, severe traffic congestion, and unacceptable air pollution levels. These 20 conditions are helping to push people and firms 0 to the peripheries of cities as they search for Village Small town Town City Large city cheaper land and housing, contributing to dis- connected and low-density urban growth that Source: Calculations based on 2015 science test score data from the Programme for International limits the productivity gains of agglomeration. Student Assessment (PISA), (http://www.oecd.org/pisa/). Although reliable and comparable data Note: Villages have fewer than 3,000 people, a small town has 3,000–15,000 people, a town has 15,000–100,000 people, a city has 100,000–1,000,000 people, and large cities have more than are difficult to come by, evidence suggests 1,000,000 people. These definitions cannot be mapped into the portfolio of places. that house price–to–income ratios in 8  TIME TO ACT FIGURE O.8  One-fifth of Indonesia’s urban population lives in slums, and overcrowded housing is commonplace in metro cores and single-district metro areas a. Share of urban population living in slums, 2015 b. Share of households in overcrowded housing 60 40 35 50 30 40 25 Percent Percent 30 20 15 20 10 10 5 0 0 2002 2016 lo . In bia sia il Th ia d Vi a La m ilip DR s a Co ep ne az n ny an d na i ne oP Ch R In m Br pi Ke ail et b do ra t, A Ph Jakarta core Jakarta periphery yp Eg Other metro core Other urban periphery EAP (excluding high-income) average Rural periphery Single-district metro Lower-middle-income average Nonmetro urban Nonmetro rural Sources: Panel a calculations based on data from World Bank World Development Indicators (http://datatopics.worldbank.org/world-development-indicators/); panel b calculations based on data from Indonesia’s 2002 and 2016 National Socio-Economic Surveys (SUSENAS). Note: EAP = East Asia and Pacific. Bandung, Denpasar, and Jakarta are higher cities in the world. On the TomTom Traffic than in New York.13 Along with a lack of Congestion Index, Jakarta was the third-most adequate access to mortgage financing, the congested of 18 megacities worldwide,16 with high cost of housing contributed to one-fifth an estimated 58 percent extra travel time of Indonesia’s urban dwellers living in slums needed for any trip, anywhere in the city, at any in 2015.14 Although this share is substan- time compared with a free-flow situation.17 tially lower than the share of the urban pop- Indonesian cities are also among the most con- ulation living in slums in countries such as gested on the Inrix Global Traffic Scorecard Kenya, the Lao People’s Democratic (figure O.9). Even in smaller cities such as Republic, and the Philippines, it still equates Padang and Yogyakarta, drivers spend about a to 29 million Indonesians—roughly equiva- quarter of their driving time stuck in conges- lent to three times the entire population of tion. According to new estimates prepared for Sweden—living in slums (figure O.8, panel this report, the total cost of traffic congestion a). There is also significant overcrowding of for Indonesia’s 28 multi- and single-district housing in multidistrict metro cores and sin- metro areas is at least US$4 billion (equivalent gle-district metro areas, especially in to 0.5 percent of national GDP) a year in Jakarta’s core, where 35 percent of house- excess travel time and fuel consumption, with holds lived in overcrowded housing in 2016, US$2.6 billion for Jakarta’s core alone.18  up from 28 percent in 2002 (figure O.8, Such traffic congestion, together with the panel b).15 use of polluting fuels in motorized vehicles and Traffic congestion is another congestion industrial coal plants that power urban areas, force that undermines the livability and pro- means that pollution is yet another congestion ductivity of Indonesia’s metro areas. Jakarta is force that afflicts Indonesia’s metro areas. consistently rated one of the 10 most congested Twenty of 28 multi- and single-district metro O v er v ie w   9 FIGURE O.9  Indonesia’s cities are among the most availability of affordable housing to help cre- congested in the East Asia and Pacific region ate metro areas in Indonesia that are highly residentially segregated. Multidistrict metro Padang areas are strongly sorted into high- and low- Yogyakarta skill neighborhoods (map O.1, panel a), with Malang high-skill neighborhoods centrally located Bangkok close to both the best jobs and services Pontianak (map O.1, panel b). High-skill workers there- Bandung fore face relatively little inconvenience from Bengkulu congestion in their daily commutes from home Tarogong to the office and in travelling to access basic Medan services. By contrast, low-skill households and Jakarta workers, priced out of good-quality housing in Sungai Pinang Semarang the cores, are concentrated in less central Tasikmalaya neighborhoods disconnected from both the Surabaya best jobs, and health and education services. Denpasar Not only is this strong residential sorting a Bogor source of heightened inequality and hence a Sakaka lack of inclusiveness within metro areas, but it Lat Krabang may also be undermining the aggregate Riyadh strength of human capital spillovers between Fujairah high- and low-skilled workers, with detrimen- Chiang Mai tal effects for productivity and prosperity. Kuwait City Empirical evidence undertaken for this report Jeddah shows that multidistrict metro areas with Dubai more residential segregation between high- Singapore and low-skilled workers generate weaker 0 5 10 15 20 25 aggregate human capital externalities.19 Share of driving time spent in congestion (percent) Source: Based on data from Inrix Global Traffic Scorecard 2017 (http://inrix.com/scorecard/). Note: The scorecard covers 1,360 cities, 15 of which are in Indonesia. Congestion refers to road speeds Closing service delivery gaps would extend that are less than 65 percent of free-flow speeds. Red bars indicate Indonesian cities. the livability and prosperity benefits of urbanization to all areas had unsafe ambient outdoor air pollu- Although metro and larger urban areas in tion in 2015 (figure O.10, panel a). Jakarta’s Indonesia struggle with issues of slums and air is fouler to breathe than that of Ho Chi overcrowding, traffic congestion, and pollu- Minh City, Kampala, Mexico City, and São tion, urban residents tend to do better, on Paulo; Pekanbaru’s air is also more polluted average, than their rural counterparts in terms than that of Mumbai and Shanghai (figure of access to hospitals and schools, clean water, O.10, panel b). These high pollution levels are and safe sanitation, all of which are impor- associated with a host of diseases and other tant determinants of both an area’s livability health-related effects that undermine the liva- and its level of human capital and, therefore, bility of metro areas. In Jakarta, an estimated prosperity. Virtually all Indonesians in multi- 60 percent of the population suffers from air district metro cores and single-district metro pollution–related diseases, and, in a percep- areas have easy access to primary care facili- tions survey conducted for this report, 70 per- ties (puskesmas), delivery facilities, and hospi- cent of surveyed city dwellers identified “less tals. By contrast, more than 20 percent of pollution” as the most important urban envi- those residing in nonmetro rural areas do not ronment issue (World Bank 2018c). have easy access to hospitals, and over In addition to pollution, severe traffic con- 80 ­percent lack easy access to a private prac- gestion has combined with the limited tice doctor.20 10  TIME TO ACT FIGURE O.10  Unsafe to breathe: Most Indonesian metro areas have unacceptable air pollution a. Annual average PM2.5 concentration, b. Annual average PM2.5 concentration, Indonesian cities, 2015 Indonesian and international cities, 2015 Pekanbaru Dhaka Jambi Beijing Palembang Pekanbaru Bukittinggi Shanghai Padang Johannesburg Pontianak Mumbai Medan Seoul Jakarta Bangkok Semarang Medan Bandar Lampung Los Angeles Bandung Jakarta Salatiga London Surabaya Mexico City Surakarta Kampala Magelang São Paulo Mojokerto Surabaya Sukabumi Banjarmasin Moscow Yogyakarta Bandung Pasuruan Tehran Blitar Ho Chi Minh City Malang Istanbul Probolinggo Tokyo Balikpapan Paris Denpasar Bogota Samarinda Buenos Aires Banda Aceh Nairobi Makassar Makassar 0 10 20 30 40 50 60 70 0 30 60 90 120 150 Micrograms per cubic meter Micrograms per cubic meter Source: Calculations based on satellite-derived data from Dalhousie University where, for global consistency, cities are defined as “high-density clusters” using the algorithm of Dijkstra and Poelman (2014) as applied to Landscan-2012 gridded population data. Note: PM2.5 is particulate matter of 2.5 microns or less in diameter. In panel a, dark blue–colored bars indicate PM2.5 levels that exceed the World Health Organization’s standard of 10 micrograms per cubic meter for safe air. In panel b, red-colored bars indicate Indonesian cities. With better access to basic services, chil- portfolio of places. This convergence, in turn, dren in urban areas are healthier and better has reduced the pressure for “push” migra- educated. Even after controlling for differ- tion—stimulated by the push of distress ences in access to services, as well as house- rather than the pull of opportunity—to the hold characteristics, children in multidistrict metro areas. Nevertheless, significant gaps metro cores are taller and heavier for their remain between urban and rural areas in age than children in nonmetro rural areas.21 access to education, health, water, sanitation, Individuals living in households in multidis- and hygiene services (figure O.11). trict metro cores and single-district metro Access to basic services continues to be areas are also more likely to be literate and to more challenging for both households living have finished primary school than those in on the rural fringes of large metro areas and rural areas. households in nonmetro rural areas. These Over time, some convergence has occurred areas continue to significantly lag urban areas in access to services across Indonesia’s on health and educational outcomes, O v er v ie w   11 MAP O.1  Neighborhoods in Jakarta are highly Better connectivity would further help in segregated by skill level with more-skilled residents spreading prosperity from more urban to living closer to basic services less urban places Although service delivery gaps provide part of a. Spatial distribution of adults with tertiary education the explanation for disparities in prosperity and well-being across Indonesia’s portfolio of places, another important part of the story is a Share of adults with lack of connectivity. There is inadequate infra- tertiary education (%) structure to connect the core and periphery 0.0–8.7 areas of multidistrict metro areas, and metro 8.7–17.4 17.4–26.1 and nonmetro areas. This is partly due to 26.1–34.8 underinvestment in transport infrastructure. 34.8–43.5 Total transport investment fell from about 43.5–52.2 52.2–60.9 2 percent of GDP in 1995 to less than 1 ­ percent 60.9–69.6 in 2000; since then, it has slowly recovered 69.6–78.3 to pre-Asian financial crisis levels, reaching 78.3–87.0 2.2 percent in 2016. By contrast, during this period, other major developing countries were b. Travel times to Jakarta core’s nine regional public hospitals investing heavily in improving their transport connectivity between cities. In recent decades, China has constructed a 96,000 kilometer net- work of highways connecting the country’s largest cities and is building the world’s longest high-speed rail network to connect its main population centers (Bosker, Deichmann, and Roberts 2018). Meanwhile, between 2001 and 2012, India built its Golden Quadrilateral highway network, which, at nearly 6,000 kilo- meters in length, links the country’s four major Travel time metro areas—namely, Delhi, Kolkata, Mumbai, (minutes) and Chennai (Ghani, Goswami, and Kerr 1–20 2016, 2017). Although transport investment in 21–40 Indonesia has recovered since the Asian finan- 41–60 cial crisis, the current level of investment is 61–80 unlikely to be sufficient to meet the demand 81–100 for transport, and, relative to population, 101+ Indonesia’s stocks of both main roads and rail- PPP $3.10 poverty rate (%) ways are low compared to many other coun- tries (figure O.12).23 2 .57 0.1 Of course, as the world’s largest archipe- 13 lagic country, Indonesia and its portfolio of Sources: For panel a, calculations are based on Indonesia’s 2010 Population Census. For panel b, travel time calculations are based on data from Google Maps and Trafi, while poverty data are from Smeru places could never be fully connected by Institute’s 2015 poverty map (http://www.smeru.or.id/en/content/poverty-and-livelihood-map- roads alone, especially outside Jawa. Both indonesia-2015). maritime and air transport connectivity are Note: The PPP $3.10 poverty rate refers to the share of the population living on less than $3.10 per day at 2011 constant international prices. PPP = purchasing power parity. also important, but here, too, Indonesia suf- fers from issues that hamper integration. In undermining the formation of human capital the maritime transport sector, which is espe- in these areas and hence their productivity. cially important for goods market integra- This is particularly significant as urban popu- tion, insufficient investment and an lation growth was fastest between 2004 and inadequate legal and regulatory framework 2016 in precisely these areas.22 contribute to poor performance of the ports 12  TIME TO ACT FIGURE O.11  Despite convergence, significant urban–rural gaps remain in access to basic services a. Share of households b. Share of households with a child c. Share of households lacking access to a preschool, under age 5 not delivered by a skilled without access to safe drinking 2003 and 2014 health worker, 2002 and 2014 water, 2002 and 2016 50 50 70 60 40 40 50 30 30 40 Percent Percent Percent 30 20 20 20 10 10 10 0 0 0 2003 2014 2002 2014 2002 2016 Jakarta core Jakarta periphery Other metro core Other urban periphery Rural periphery Single-district metro Nonmetro urban Nonmetro rural Sources: Adapted from Lain 2018, using data from Indonesia’s 2002, 2014, and 2016 National Socio-Economic Surveys (SUSENAS) and 2003 and 2014 Surveys of Village Potential (PODES). FIGURE O.12  Indonesia’s road and railway networks are not as extensive as in many other countries a. Main roads per 1,000 population, circa 2015 b. Railways per 1,000 population, 1994 and 2014 1.4 0.8 1.17 Length of main roads (km) 1.2 0.7 Length of railways (km) 1.0 0.90 0.6 0.78 0.5 0.8 0.66 0.4 0.6 0.50 0.44 0.37 0.3 0.4 0.2 0.2 0.11 0.05 0.1 0 0 es Ge ico Th ny d a de il In tion sia a ed es n ca ico Th zil d a do a sia Fe raz n di di n So atio an an at n F Stat a fri a i i ne ne ex ex Ch Ch In In Br rm ail ail ra St B hA er do M M d d ut In ite ite Un Un ian ia ss ss Ru Ru 1994 2014 Sources: For panel a, calculations based on roads data from the Global Roads Inventory Project v 4 (GRIP4) dataset (https://www.globio.info/download- grip-dataset) (Meijer, Huijbegts, and Schipper 2018); for panel b, calculations based on railway data from World Bank World Development Indicators (http:// datatopics.worldbank.org/world-development-indicators/). Population data for both panels is from World Bank World Development Indicators. Note: In panel a, main roads include both highways and primary roads; roads data are for various years between 2010 and 2015 with population data chosen to match the year of the roads data. O v e r v i e w   13 and operations that link Indonesia’s islands. This poor performance, in turn, translates Policies to realize into wide differences in shipping costs: Indonesia’s urban potential sending a 6-meter container within Basic policy principles for getting more out of Indonesia from Tanjung Priok to Jayapura, urbanization: Augment, Connect, and Target Banjarmasin, and Padang costs approxi- Within the next quarter of a century, Indonesia mately US$1,000, US$650, and US$600, will have reached an advanced stage of urban- respectively, compared with shipping costs ization, with more than 70 percent of its popu- from Tanjung Priok to Guangzhou (China) lation living in towns and cities. As time goes of about US$400. by, the costs of shifting the country’s urban Similarly, domestic air travel remains development trajectory increase because, once extremely concentrated along a few routes built, the urban environment is very difficult to between Jakarta and other major metro change. To sustainably shift Indonesia to a tra- areas such as Surabaya. Although Indonesia’s jectory that brings more prosperity, inclusive- market for domestic air travel is both large ness, and livability, policy makers can follow and growing rapidly, a lack of competition, the basic ACT principles of Augment, Connect, compounded by relatively weak regulatory and Target (box O.2): enforcement, adversely affects safety and ser- vice standards, and is likely to become an •  Augment the coverage and quality of basic increasingly important constraint as the mar- services and infrastructure for all people in ket undergoes ­further growth. all places. BOX O.2  The basic policy principles: Augment, Connect, and Target Three basic policy principles— A ugment , •  Connect refers to enhancing the connections Connect, and Target—can guide the central and between places through investments in trans- subnational governments in Indonesia as they port infrastructure and reforms that increase work to ensure that urbanization brings more the spatial integration of markets for goods, prosperity, inclusiveness, and livability to the services, labor, and capital. It also refers to country. better connecting people to jobs, opportuni- ties, and services within places. By contribut- •  Augment refers to expanding and equalizing ing to the spread of prosperity and facilitating access to high-quality basic services across access to basic services whose provision it all places. Ensuring that all Indonesians have might make sense to centralize in certain loca- access to good-quality health and education tions, connecting helps make the urbanization services, safe water, proper sanitation, and process more inclusive, both within urban other basic services would mean that people places and across urban and rural places. move to urban areas because of the •  Target refers to using customized policies to opportunities these areas offer rather than address stubborn and lingering inequalities, because of the lack of basic services in rural which may persist even if the first two pol- areas. Expanding access to basic services and icy principles of augment and connect were infrastructure in line with the population fully enacted. Taking account of the needs would also reduce the speed at which of lagging regions and groups of people (for negative congestion forces mount as cities example, women and girls, the elderly, and grow in population. As such, augmenting people living with disabilities) whose needs basic service access and local infrastructure require extra consideration in urban plan- provides the foundation for economic ning and design would help ensure that the prosperity and for improving the livability of urbanization process benefits all people in cities. all places. 14  TIME TO ACT •  C onnect to integrate both across and cores and single-district metro areas, ensuring within places. universal access to good-quality basic services •• T arget any places and any people left would also help ease the strong congestion behind. pressures already so evident in these areas. The connect principle matters for rural and These three principles matter in different nonmetro areas because it provides the main ways for different types of place (table O.1).24 channel for such places to benefit from the For all types of place, actions to augment the higher productivity of the multidistrict metro coverage and quality of basic services cores and the single-district metros, contribut- are important to close the gaps between those ing to a more inclusive urbanization process. who do and do not currently have access to The connect principle is also important in such services. Doing so would also raise the facilitating the access of residents in rural livability of all types of place, ensuring that, and  nonmetro areas to more advanced when people move to the metro areas, they do ­ s ervices—for example, hospitals with so not out of distress but out of opportunity. advanced facilities for the treatment of com- Moreover, to the extent that improving the plicated ­illnesses and universities that provide coverage and quality of basic services lifts a world-class tertiary education—that it human capital, such actions would improve might not make sense to provide locally. productivity and therefore prosperity, thus Finally, improving connectivity within multi- contributing to the overall inclusiveness of the district metro areas is especially important for urbanization process. For multidistrict metro their prosperity and inclusiveness, because the TABLE O.1  Importance of the ACT principles to different types of place Principle Type of place Why it matters All types ·  Close gaps in access to basic services between individuals. ·  Elevate human capital as people get better access to services that directly (for example, health and education services) or indirectly (for example, better wastewater management) boost skills and health. Augment ·  Expand infrastructure and basic services in line with population growth to counter growing congestion forces. Multidistrict metro cores; ·  Help to ease strong congestion forces as already reflected in a single-district metro areas lack of affordable housing, severe traffic congestion, and high pollution. Nonmetro urban areas; ·  Integrate these areas with the multi- and single-district metro nonmetro rural areas areas, allowing for the spillover of prosperity and, therefore, a more inclusive urbanization process. ·  Facilitate access to more advanced services in multi- and single- district metros. Connect Multidistrict metro cores; ·  Connect people with jobs and services, creating more integrated single-district metros labor markets and boosting positive agglomeration forces. Urban peripheries; ·  Integrate these areas with multidistrict metro cores, countering rural peripheries the negative effects of residential segregation. Nonmetro rural areas ·  Provide extra assistance to places where the policy principles of augment and connect are not by themselves enough to generate prosperity. Target Multidistrict metro cores; ·  Ensure benefits of urbanization are fully shared with women urban peripheries; and girls, the elderly, and people with disabilities through urban single-district metros; planning and design that take account of the needs of all. nonmetro urban areas O v er v ie w   15 strong residential segregation between high- Expanding subnational financing options and low-skilled households and workers in would increase the envelope for much- metro areas is a source of inequality, as well needed investments in basic infrastructure as of diminished productivity and prosperity. services For the peripheries of multidistrict metro The needs for basic infrastructure and ser- areas, it is also important because empirical vices in Indonesia’s urban areas are enormous. evidence presented in this report shows that As an indication of the costs, a 2015 market enhanced access to domestic markets, which assessment of 14 large Indonesian cities esti- can be achieved through strategic investments mated an overall subnational infrastructure in transport infrastructure, is a significant investment financing gap of US$11.1 billion driver of their underlying productivity.25 (map O.2). Meanwhile, during 2011–13, total Finally, the target principle, to reach lag- infrastructure investment in Indonesia stood ging places through better-designed place- at only about 3–4 percent of GDP, having based policies, is of most importance to fallen from approximately 7 percent for nonmetro rural areas, especially those outside 1995–97 (World Bank 2017b). This level of Jawa-Bali. These areas are most likely to fall investment is unlikely to bridge the urban behind even if the policy principles of aug- infrastructure gap, especially considering that ment and connect are fully implemented. neighboring countries such as China, When it comes to improving urban planning Thailand, and Vietnam were each investing and design to address the needs of women, between 7 and 10 percent of their GDP in girls, the elderly, and people living with dis- infrastructure annually during 2011–13. abilities, however, the target principle applies The potential sources of additional financ- to all types of urban area. It takes on an extra ing to bridge the infrastructure and service dimension in the multi- and single-district delivery gaps depend on the type of place. For metro areas, at least for transport, because multidistrict metro cores, urban peripheries, travel patterns for women in these areas tend and single-district metro areas, considerable to be more complex (Greed and Reeves 2005), scope exists for improving own-source reve- and the risk of social isolation of the elderly nues, especially through property taxes. and people living with disabilities is greatest. Indeed, at 11–12 percent, own-source reve- nues already account for at least double the The key to ACT-ion: Institutional reforms to share of total revenue for these areas than for subnational governance and finance other types of area.26 Even so, political con- Successfully implementing the ACT principles siderations have led Indonesia to focus fiscal requires fundamental reforms to Indonesia’s decentralization on the expenditure side. The system of subnational governance and “money follows function” principle stipulates finance, particularly in three key areas: that subnational governments are mainly responsible for spending, whereas the central •  Expanding options for subnational financ- government generates most of the revenue. ing to meet basic infrastructure and ser- Even in the most urbanized areas, therefore, vice needs the revenue raised through property tax pales •  Building capacity for planning, implement- in comparison to advanced countries such as ing, and financing urban development the United States, where 30 percent of local •• Improving institutional coordination ver- government revenues came from property tax tically and horizontally at all levels of in 2014. Nationwide, property tax revenue is government. equivalent to 0.57 percent of GDP in Again, the exact ways these policy action Indonesia, which is among the lowest for areas apply partly depend on the type of G20 countries (figure O.13). Issues that will place, but their implementation would ulti- need to be addressed by districts to expand mately enable Indonesia’s urbanization pro- property tax revenue include low coverage of cess to deliver more prosperity, inclusiveness, the cadaster, low tax rates for urban areas, and livability. and low collection rates. 16  TIME TO ACT MAP O.2  Indonesian cities face large infrastructure investment financing gaps, 2014 Investment need gap Borrowing capacity Surabaya Revenue (excl. salary, earmarked 2,954 and contingency fund) Batam 825 Pontianak 361 Banjarmasin Balikpapan Bangka 651 339 Makassar 449 860 Semarang 1,262 Gresik Sidoarjo Bogor 875 521 642 Lombok Surakarta Denpasar Barat 279 606 339 Source: Joshi et al. 2015. Note: Investment needs gaps are expressed in millions of U.S. dollars (2014 prices). Beyond property tax, metro areas can FIGURE O.13  Indonesia has lower also draw on alternative sources of own- property tax revenue than most other G20 source revenue through transparent and sus- countries tainable urban development practices. Land value capture and transfers of development France 4.3 rights are instruments that subnational gov- United Kingdom 4.21 ernments could explore for raising infra- Canada 3.54 structure development funds. Using these United States 3.14 types of instruments will, in turn, require Argentina 2.9 building the familiarity of district govern- Japan 2.69 Korea, Rep. 2.62 ment staff with the tools of real estate Australia 2.47 development. China 1.73 Financing investments in urban infrastruc- South Africa 1.39 ture, especially public transport, may also Brazil 1.25 require going beyond resources available from Russian Federation 1.2 the annual budget, particularly in multidistrict Italy 0.81 Germany 0.8 metro areas where the investment requirements Indonesia 0.57 are higher. For example, in a large metro like India 0.48 Jakarta, a mass rail system may be required, but Turkey 0.27 such a system costs 12 times more per kilometer Mexico 0.25 than a bus rapid transit system, which might 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 suffice to meet the transportation needs of a Property tax revenue (percent of GDP) smaller city.27 Currently, subnational govern- ment debt in Indonesia is very low at only Source: Prakash 2013. 0.04 percent of GDP.28 Developing a framework Note: Figure omits the European Union and Saudi Arabia due to missing data. O v er v ie w   17 to gradually empower financially sound subna- services in line with their populations, con- tional governments to access capital markets tributing to the mounting of congestion and official financing would help them to meet forces. their infrastructure needs. The fact that increased resources to less A case can also be made for revamping populous districts have not translated into Indonesia’s fiscal transfer system, which was results suggests that resources may not be the put in place by the “big bang” decentraliza- binding constraint for nonmetro rural areas tion in 2001. The reforms not only shifted when it comes to the provision of infrastruc- resources for service delivery and infrastruc- ture and basic services. Indeed, there may be ture provision from the central to subnational capacity constraints for implementation, governments29 but also skewed the allocation implying that the resources may be more effi- of those resources more toward less populous, ciently directed elsewhere. Gradually moving nonmetro, and more remote areas. This skew- toward a transfer formula that places more ing is a consequence of the transfer formula weight on population could improve the abil- for the Dana Alokasi Umum (DAU, or ity of growing urban areas—most notably, the General Allocation Grant), in which the size urban peripheries of multidistrict metro of the transfer that a district receives is largely areas—to tackle mounting congestion forces independent of its population. Although such without adversely affecting infrastructure and a design would seem to promote improve- service provision in rural areas. ments in basic service delivery and infrastruc- ture in the most lagging areas, regression Building capacity for planning, implementing, evidence presented in this report suggests that and financing infrastructure and urban it has failed to translate into results—less development populous districts favored by the decentral- ization reforms and transfer formula have The failure of fiscal transfers and infra- failed to improve basic services and infra- structure spending in less populous districts structure at a faster pace than less favored, to translate into results suggests that resources more populous districts.30 Districts favored may not be everything. A more important by the post–big bang transfer system have constraint for nonmetro areas in implement- likewise failed to improve their stocks of ing the ACT principles may be related to local roads and access to markets through trans- capacity issues in planning and executing portation networks at a faster pace than less infrastructure projects. More generally, capac- favored districts, which suggests that the more ity needs to be improved across the portfolio intense spatial targeting of nonmetro areas of places in three interrelated areas: has not helped to improve their relative con- 1. The capacity of subnational govern- nectivity and integration with metro areas. ment staff to address issues of urban and They also failed to experience significant regional development improvements in manufacturing firm out- 2. The capacity to use information sys- comes in response to the “windfall” in trans- tems and data for both transparent and fer revenues. Indeed, the extra revenues failed informed decision making to halt an already evident downward trend in 3. The capacity to regulate and monitor firm performance for less populous districts subnational government performance. in relation to more populous districts. The transfer formula also penalizes places Building staff capacity to manage urban and where population growth, driven by urban- regional development issues. With Indonesia’s ization, is occurring. This is because, all else “big bang” decentralization in 2001, adminis- equal, population growth translates into trative and fiscal responsibilities were trans- declining per capita transfers. Unless these ferred quickly from central to subnational places can plug the gaps through increased governments without transitional staff train- own-source revenue, it will be harder for ing. Between 1999 and 2001, the share of them to expand infrastructure and basic civil servants on subnational government 18  TIME TO ACT payrolls increased from just over 12 percent at the university level will also prepare future to almost 67 percent (World Bank 2003). In government staff in these core areas. Financial addition, the total civil service expanded by support for such training could come from 25 percent from 2006–17, from about capacity-building grants to subnational gov- 3.6  million to more than 4.5 million ernments. Moreover, reducing the frequency of (World Bank 2018b). rotation of government staff among depart- Although the quality of the Indonesian ments would create more incentives to invest civil service has also improved because of in skills specific to a department and to allow more meritocratic hiring and promotion for retaining specific capacities. practices (World Bank 2018b), most district- With respect to information systems and level public works departments still have too data, ATR/BPN, together with the National few professionally qualified staff, and the Geospatial Information Agency, is well- quality of available training is questionable placed to take on the responsibility of pro- (World Bank 2012). Many staff are also viding an integrated data and mapping unfamiliar with calculating the fiscal needs platform for spatial planning and analysis. of complex projects. Often, when subna- Meanwhile, districts should integrate cur- tional staff members improve their skills, rently disparate statutory plans into a com- they are rotated to other departments for mon spatial development framework. On political or administrative reasons, leaving tax administration, relevant government capacity gaps behind. agencies could use satellite imagery, Building capacity to use information unmanned drones, and automated methods ­ systems and data. The absence of consistent, to prepare effective cadasters. The central reliable base maps and data impedes produc- government should also support subnational tion of local spatial plans in Indonesia. governments in building and enhancing their Similarly, the lack of access to reliable land current tax information and management records and spatial data inhibits infrastruc- system (Sistem Informasi dan Manajemen ture investments and service delivery. 31 Objek Pajak or SISMIOP). Moreover, there is no common framework to Building capacity to regulate and monitor integrate different plans from different min- subnational government performance . istries and agencies, creating confusion that To  improve regulatory and monitoring undermines urban development and capacity at both the central and subnational ­ investment. levels, the central government could consider A systemic lack of capacity also hampers the following: local taxation, particularly the management of property taxes, which, as argued earlier, are •  Setting up an accountability system requir- an underleveraged source of own-source rev- ing subnational governments to report to enue for metropolitan areas. Subnational gov- the central government on their perfor- ernments lack the expertise, capacity, and mance. This could be in the form of a web- cadastral information from the Ministry of based system to standardize reporting by Agrarian Affairs and Spatial Planning/ subnational governments. National Land Agency (ATR/BPN) to manage •  Having an independent body such as property taxes. the government’s auditor or the relevant Policy options to improve capacity include line ministry verify such reports, following establishing well-designed, on-the-job training the lead of the Local Government and programs to improve data quality and man- Decentralization project.32 agement in urban and spatial planning (World •• Aligning the incentives of local government Bank 2017a), improving geospatial education leaders to deliver better services and provide (through, for example, professional courses, a basis for central government intervention organized with leading Indonesian universi- by conditioning fiscal transfers to subna- ties), and delivering training in tax collection tional governments on the verification of and management. Upstream skill development such performance reporting. O v er v ie w   19 Improving institutional coordination vertically multiplied the number of decision points, and horizontally at all levels of government increasing the complexity of coordinating across different sectors, levels of government, The decentralization of decision making for and, crucially for multidistrict metro areas, providing basic services and infrastructure jurisdictional boundaries. Finding effective has had many benefits. It was, however, solutions to these coordination challenges is almost inevitably accompanied by inertia in central to the successful implementation of the functioning of central public institutions, the ACT policy principles. so that the new decentralized decision-­making More specifically, policy needs to better process coexisted with the pre–big bang cen- address three key coordination challenges tralized decision culture. Even today, the old (box O.3). Overcoming these challenges will central planning process is still in place, with require addressing their underlying origins— annual, five-year, and long-term plans; and a namely, the excessive complexity of decision large fraction of the administrative staff making in Indonesia that has resulted from across the country is centrally managed by the the successive addition of new institutional Ministry of State Apparatus Empowerment layers on top of existing ones. The first step to and Bureaucratic Reform (PANRB). doing this will be to identify redundancies and Although decentralization has served the simplify the country’s governance structure— invaluable function of bringing the manage- an enormous task requiring strong commit- ment and planning of places, especially urban ment, but essential for improving efficiency. places, closer to the people, it has also BOX O.3  The three coordination challenges Challenge 1: Vertical coordination designs, and implements water infrastructure In Indonesia, 32 types of activity are shared development projects in subnational government among the central, provincial, and district gov- jurisdictions. It later hands over these assets to ernments, with each level playing a different role subnational water utilities, but follow-up invest- depending on the sector. Districts play the larg- ment in distribution ­ networks and connections est role in education, health, and infrastructure, may not occur, leading to increased idle capacity whereas the central government plays the largest of the utilities (World Bank 2015). role in general administration, social protection, and housing and public facilities (figure BO.3.1). Challenge 2: Horizontal coordination Sectoral departments at the subnational level, across sectors however, do not map hierarchically to the Urban development is a cross-cutting issue that corresponding national ministries. ­ requires the involvement of many ministries and The consequence is that “everybody’s business agencies. In Indonesia, at least eight ministries is nobody’s business.” Often, neither the central and agencies, each in charge of different sectors, nor the provincial nor the district government need to coordinate on this issue. An intermin- takes responsibility for vertical coordination and isterial steering committee on urban develop- ensuring that activities in each sector deliver the ment under the stewardship of the Ministry of intended results. For example, in urban water, National Development Planning/National the lack of coordination between central, pro- Development Planning Agency, Bappenas, vincial, and district governments and the poor includes representatives from relevant minis- prioritization of subnational government capital tries and agencies. The committee is chaired, expenditure have led to disappointing increases however, by an Echelon 1–level official (a dep- in the number of homes connected to pipes. The uty minister) who reports to the Minister of Ministry of Public Works and Housing plans, National Development Planning, whereas other Box continued on next page 20  TIME TO ACT BOX O.3 Continued committee members report to their respective networks to connect and integrate metro areas, ministers, hampering intersectoral coordination. sewage treatment, storm-water systems, and solid waste treatment facilities. One example Challenge 3: Horizontal coordination of the problem is the increased flooding risk within multidistrict metro areas in Jakarta’s core, which is associated with the Whereas the first two coordination challenges failure to prevent haphazard and often illegal affect all types of place, the third—horizontal development in the upstream water catchment coordination of neighboring jurisdictions— areas of Kabupaten Bogor in the south of metro applies especially to multidistrict metro areas. Jakarta. This contributed to major floods in the This challenge affects the efficient delivery of capital in February 2007, causing more than large-scale infrastructure at the metro level, 70  deaths and displacing 340,000 residents including the delivery of urban transport (World Bank 2008a). FIGURE BO.3.1  Districts account for about half the public spending in education, health, and infrastructure 100 27 25 33 Share of total government 80 54 48 spending (%), 2014 57 8 14 60 16 40 19 8 18 67 59 51 20 35 33 28 0 Education Health Infrastructure General Social Housing and administration protection public facilities Central Province District Source: World Bank 2016. To improve coordination between different a coordinating minister and established by a levels of hierarchy, more clarity on the role for presidential decree—could be an effective way each level of government (central, provincial, to gain traction on reform. This platform district) in delivering infrastructure and ser- would replace the current interministerial vices would help. The Ministry of Home coordinating committee and be similar in Affairs could also empower provincial gov- spirit to, for example, the National Team for ernments to ensure coordination between the Acceleration of Poverty Reduction and the central and district governments. National Coordination Team for the To improve horizontal coordination across Achievement of the Sustainable Development sectors, a national platform on urban trans- Goals. Because it would be a national plat- formation—led by either the vice president or form reporting directly to the president, O v er v ie w   21 it would carry more authority than the exist- development, and to combat severe traffic ing coordinating committee and, therefore, be ­ congestion are needed. Such measures are more effective in bringing about coordination central to making places more inclusive and ­ and elevating the urban agenda more prosperous, countering the residential segrega- broadly.33 tion of high- and low-skilled workers that is Finally, to improve horizontal coordina- undermining the beneficial spillover of ideas tion of neighboring districts—most notably, between workers. within multidistrict metro areas—the central For housing, key actions include scaling up government has several policy options. These current efforts to improve the fluidity of land include, for example, elevating metropolitan and housing markets, as well as to enhance management functions to provincial local technical capacity for coordinated and government(s).34 The options also include spatially appropriate land and housing plan- encouraging greater contracting between sub- ning. This could involve measures to improve national governments to deliver complemen- land administration, the complexity of which tary services and promoting the establishment currently constrains the availability of land in of multigovernment enterprises for specific well-located areas for infrastructure and purposes, such as transport or solid waste housing development. It could also include a disposal.35 review of existing regulations by subnational governments to remove artificial constraints Additional policy actions are required on well-located land, to simplify procedures to ACT and deliver on the promise of for land acquisition, and to accelerate (and urbanization reduce costs) for building registration and permits, and to implement occupancy certifi- Although institutional reforms to subnational cate processes. An integrated housing plat- governance and finance provide the backbone form—like Mexico’s National Housing for implementing the ACT policy principles Registry—could also be considered.36 Such a and, hence, the better leveraging of urbaniza- platform would combine housing and land tion for prosperity, inclusiveness, and livabil- market information to improve accountabil- ity, they are not, by themselves, sufficient for ity and efficiency across all levels of govern- the full implementation of the Connect and ment and support transparent sharing of Target principles. Improved connectivity and market information about housing demand, integration of urban areas—especially metro supply, location, prices, and finance. Finally, areas—also requires additional policy actions measures could be implemented to strengthen at the interface of housing and urban trans- subnational government capacity to develop portation, and connecting places requires and enforce regulatory systems relating to, for additional actions to address regulatory issues example, zoning and construction quality that in transportation markets. Finally, targeting support integrated and resilient urban growth. any places and any people left behind requires Policy makers could also explore scaling a rethinking of Indonesia’s approach to place- based policies and a paradigm shift in the up examples of innovative mixed-use, mixed- country’s approach to urban planning and income development like Vida Bekasi, 37 design. located in Bekasi City in West Jawa, to coun- ter strong residential sorting of workers by income and skill level. Vida Bekasi is a new Enhancing the connectivity and integration sustainable urban development of 15,000 res- of urban areas—especially metro areas—also idents, designed with a master plan that inte- requires specific policy interventions at the grates mixed-use design with place-specific interface of housing and urban transport considerations. It also integrates a public In addition to reforms in governance and transportation system to connect with finance, specific policy actions to ensure a Bekasi’s train station and a bus terminal—and ­ sufficient supply of well-located affordable has a school, shopping center, and market- housing, to promote more mixed-income place. To promote integrated growth more 22  TIME TO ACT generally, subnational governments can guidelines for subnational governments. encourage the development of varied housing These guidelines will help ensure that trans- typologies, such as two-story townhomes, port system designs are based on robust and incremental strategies, and midrises that cater reliable demand forecasts for the medium to to different income (and skill) groups in the long term, and that investments are pro- same development. The supply of affordable posed under a well-defined funding and rental housing could also be increased. financing framework and targeted to the Finally, reforming housing finance would most effective modes of transport for differ- help the government to target unserved ent places. A comprehensive transport policy groups and crowd in the private sector. This would outline actions that improve supply requires continuing efforts to improve and manage demand, while discouraging pri- Indonesia’s current credit-linked subsidy pro- vate vehicle use. grams—the Housing Loan Liquidity Facility To manage traffic demand, subnational (Fasilitas Likuiditas Pembiayaan Perumahan, governments in metro areas may want to FLPP) and the Interest Rate Buy-Down revisit Jakarta’s 3-in-1 high-occupancy vehicle Subsidy (Subsidi Selisih Bunga, SSB)—which (HOV) policy. Although it was revoked currently focus on middle-income households because of its unpopularity, the HOV policy and generate high fiscal costs. To the extent was successful in reducing congestion while it that schemes such as FLPP have helped pro- was in place (Hanna, Kreindler, and Olken mote affordable housing in metro areas, it has 2017). A better-designed variant of the policy, often been in their peripheries. One option is if introduced, might prove more long lasting. to use the BP2BT ( Bantuan Pembiayaan The reduction of explicit and implicit subsi- Perumahan Berbasis Tabungan ) savings- dies to private car use can also be considered. linked down-payment subsidy program, For example, in Vienna, reorganizing parking which provides unserved informal and self- spaces in the city, eliminating free parking, built sectors access to subsidies and intends to removing parking from historic places, and crowd in private sector funding and participa- instituting street and parking permissions for tion at market-based pricing. residents were key actions for reducing car Tackling severe traffic congestion, an issue use (Buehler, Pucher, and Altshuler 2017). that particularly afflicts multi- and single-­ In addition, congestion charges, such as those district metro areas, will similarly require a in cities like London, may also form part of coordinated and spatially driven approach to the policy mix for better demand manage- planning and developing transport infrastruc- ment, especially in multidistrict metro cores ture. Such an approach requires strong coor- and single-district metro areas. dination in increasing the supply of To enhance local capacity to plan, operate, infrastructure and services, and the use of and maintain urban transport systems, key demand management instruments to reduce actions along three lines are important: congestion and ensure that the use of private vehicles is priced to correctly reflect their true •  Strengthen transit regulatory and manage- social costs. Key actions include strengthening ment authorities so that they can better the central government’s role in guiding urban coordinate public transport services across transport policy; enhancing local capacity to administrative boundaries. plan, operate, and maintain urban transport •  Introduce measures to improve operations, systems; and promoting transit-oriented including optimized routing and schedul- development. ing, together with actions to prioritize allo- To strengthen the central government’s cation of space to public transport. role, a national urban transport policy—a •• Implement technological improvements subject discussed in the Ministry of that can considerably improve the quality Transportation for several years—needs to of service, such as smart ticketing or fare be brought to a successful conclusion. Such a collection systems, fleet management sys- policy is key to developing transport-related tems, and user information systems. O v er v ie w   23 F i n a l l y, p r o m o t i n g t r a n s i t - o r i e n t e d Connecting places requires additional actions development may involve redeveloping resi- ­ to address regulatory issues in the maritime dential structures or encouraging new build- and air transport markets ings with more vertical development by Ensuring connectivity and integration across permitting higher floor–area ratios, thereby the portfolio of places will also require addi- loosening height restrictions, or allowing tional actions to address regulatory issues in greater density in target zones. Target zones the maritime and air transport sectors. In the can be selected to promote local objectives, maritime sector, domestic connectivity across such as reduced dependence on private island-regions is hampered by, among other vehicles or development of mixed-use, things, the small size of vessels and, conse- pedestrian-friendly areas. Indonesian metro quently, the fact that the fleet is larger than areas could follow the examples of Hong necessary; the low fleet use and low service Kong and Seoul, which have already inten- frequency; and a domestic network that con- sified land use around transit stops sists of single-port-to-single-port routes rather (MGI 2016). than multiport itineraries. Although some policies, such as the Encouraging more private participation in reform of the housing finance programs and maritime transport is crucial to easing these the national urban transport policy, are constraints. Since 1992, all Indonesian com- national policies, many of the detailed pol- mercial ports have been operated by four icy actions for affordable housing and state-owned enterprises, known as Pelindo urban transport will, again, need to be tai- I to IV, each covering a designated region. The lored across the portfolio of places. Multi- 2008 shipping law was intended to change district metro areas, as evidenced by their this by introducing a new public body as the higher inequality and the strong residential Port Authority to regulate the sector and by sorting of workers by skill level, face the the easing of entry of private operators most complicated challenges to successfully through the obligation to concession port connect people with jobs, opportunities, operations. The transition to private opera- and basic services. For these areas, policy tion has been slow, however, with the main makers need to focus on ensuring that hous- issue stalling progress being distortions in the ing is available in both core and peripheral tariff structure. Current tariffs for domestic areas—ideally, in mixed income develop- users appear too low to justify necessary port ments—and that traffic congestion is com- investments. One obstacle to adjusting tariffs batted by using the full range of instruments is the need to consult with all port stakehold- on both the supply and the demand sides. ers, including associations for domestic ship- That includes expanding the supply of high- ping lines, freight forwarders, and importers quality mass transit, implementing parking and exporters. These stakeholders tend to charges and restrictions, and (re-)introduc- resist tariff increases, so policy action is ing HOV and congestion charging policies. needed to redefine the perimeter and attribu- For single-district metro areas, where hous- tion of the regulator—the Port Authority. ing supply constraints may be more binding For air transport, related issues apply. The than demand pressures, a focus on making sector is facing growing demand that capacity serviced land available for development will is unlikely to be able to keep up with, absent be important. In those areas, it may not be significant changes in the sector’s governance necessary to use congestion charging on the aimed at increasing competition and private demand side of traffic management. sector participation. Indonesian airports are Nonmetro areas, where urban population operated by two state-owned companies, growth is strong, will need to ensure that Angkasa Pura 1 (AP1) and Angkasa Pura 2 new development remains connected with (AP2), which have more than 90 percent of the city and that infill development for new seats and act as de facto monopolies in their housing is possible for, and attractive to, the respective territories. On the basis of successful private sector. 24  TIME TO ACT experiences in other countries, the possibility The places most likely to be left behind of allowing private participation in some of the are remotely located nonmetro rural areas main airports could be considered (World outside Jawa-Bali, especially those lacking Bank 2018a). the advantage of natural resources. The evi- dence in this report suggests that, although these places fail to experience other types of Targeting any places and any people left positive agglomeration forces, they do bene- behind requires a rethinking of place-based fit from positive human capital externali- policies and a paradigm shift in urban ties.38 Spatially targeted policies to help these planning and design places should be designed with these results Even if all the institutional reforms and poli- in mind. Rather than using targeted incen- cies discussed above are successfully imple- tives to attract firms to remote regions, mented to provide good, universal coverage which has been shown to have little impact of basic services across a well-connected port- outside Jawa-Bali, the government could folio of places where those places themselves consider focusing more on developing are highly integrated, some places and people human capital. Such a strategy may be com- may still be left behind. Even the most devel- plemented by incentives for firms (through oped countries have places considered “lag- dedicated infrastructure development or ging” and for which governments often deem reduced red tape, for example), but specifi- additional policy measures necessary. cally based on their contribution to the Similarly, even if a place has a well-developed human capital agenda by investing in skills, and extensive public transport system that, in especially skills that align with an area’s theory, provides good connectivity of people comparative and competitive advantages, with jobs, opportunities, and basic services, and creating jobs with significant learning subgroups of the population may still face content. Rigorous but transparent criteria barriers to using the system. This will be the for selecting targeted industries, as well as case if the system is not planned and designed monitoring and evaluating the effectiveness in a way that considers the needs of people of these policies, are important, since their with disabilities or if the system is considered cost can be high. unsafe to use by women and girls—say, Finally, for urbanization to be truly inclu- because of fear of harassment. Challenges sive for women, girls, the elderly, and people with sidewalks and access to hospitals, clinics, living with disabilities, urban planning needs and so forth may likewise constrain the abil- to apply design principles and construction ity of people with disabilities and the elderly standards for public spaces, sidewalks, transit to access services, even if those services are in facilities, and buildings that recognize the principle available. needs of all, not only the few. Within the next quarter of a century, Indonesia’s transition to an urban society will be almost complete. To realize urbanization’s full potential to deliver sustainable gains in pros- perity, inclusiveness, and livability, Indonesia’s policy makers need to ACT now to better aug- ment urban infrastructure and basic services, to connect the country’s portfolio of places and integrate its cities, and to target lagging places and the needs of women, children, the elderly, and those living with disabilities. This transition will require, first and foremost, reforms to Indonesia’s system of subnational governance and finance. It will further require regulatory reforms to key transportation markets, policy actions to improve the supply of well-located affordable housing within urban areas and to tackle traffic congestion, a rethinking of place- based policies with a focus on human capital, and a paradigm shift in urban planning and design to better recognize the needs of all segments of the population. By acting now, Indonesia’s policy makers can help ensure that, when the country celebrates the centenary of its independence in 2045, it does so as a prosperous, inclusive, and livable urban society. O v er v ie w   25 Annex OA Tailored policy options by type of place KEY TO TABLES Time horizon S = Short term (next 2 years) M = Medium term (next 2–5 years) L = Long term (> 5 years) Symbols “✓” in a cell indicates that a recommendation applies to the type of place “↔” in a row indicates that a recommendation applies to all types of place Leading institution(s)/Champion(s) ATR/BPN Ministry of Agrarian Affairs and Spatial Planning/National Land Agency Bappeda Local Development Planning Agency Bappenas Ministry of National Development Planning/National Development Planning Agency BI Bank of Indonesia BIG Geospatial Information Agency BKPR Spatial Planning and Coordination Agency BPK National Audit Agency BPN National Land Agency CMEA* Coordinating Ministry for Economic Affairs CMMA** Coordinating Ministry of Maritime Affairs Core Multidistrict metro core MCIT Ministry of Communication and Information Technology MFI Microfinance Institutions MOF Ministry of Finance MOHA Ministry of Home Affairs MOT Ministry of Transportation MPWH Ministry of Public Works and Housing MSOE Ministry of State-Owned Enterprises OJK Financial Services Authority Perum Perumnas National Housing Development Corporation SDM Single-district metro area SMF Sarana Multigriva Finansial – State-owned secondary mortgage financing company SNGs Subnational governments * Finance; Industry; Trade; Agriculture; Manpower; Cooperation and Small & Medium Enterprises; State-Owned Enterprises; Public Works and Housing; Land and Spatial Planning; Environment and Forestry ** Transportation; Maritime Affairs and Fisheries; Tourism; Energy and Mineral Resources 26  TIME TO ACT TABLE OA.1  Matrix A: Reforms to governance and subnational finance Multidistrict metro Nonmetro Single- Periphery district Leading institution(s) Time BROAD RECOMMENDATION Core Urban Rural metro Urban Rural /champion(s) horizon 1. Expand opportunities for urban financing Own-source revenue: Support vertical development, ¸ ¸ ¸ ¸ ATR/BPN; S–M more collection of property taxes, and use of real estate MOF; MSOE instruments Transfers: Keep supporting through transfers with increasing ¸ ¸ ¸ ¸ MOHA; MOF; M portion of results-based transfers Sectoral ministries Own-source revenue: Allow to keep a larger portion of ¸ ¸ ¸ ¸ MOHA; MOF M–L income tax Borrowing: Increase debt financing from both public and ¸ ¸   ¸ ¸   MOF M–L private sources Private financing: Continue regulatory reforms to encourage ¸ ¸ ¸ ¸ ¸ MOF; Sectoral M–L and support PPPs ministries Transfers: Change transfer formula to place more weight on MOHA; MOF L population 2. Build capacity for urban planning, management, and finance Personnel: Build capacity for planning, geospatial analysis, MOHA; Sectoral S–M project management, and public finance ministries; Universities; Professional associations Monitoring: Establish a system that enables subnational MOHA; MCIT; M governments to report on their outputs and benchmark their Sectoral ministries performance Information system: Strengthen common data and ¸ ¸ ¸ ¸ ATR/BPN; M–L mapping platforms for capital investment and property tax BIG; MOF management Information system: Strengthen common data and mapping ¸ ¸ ATR/BPN; M–L platforms for development control (monitoring of spatial BIG; MPWH plan) Monitoring: Enable local internal audit officers to play a BPK M–L larger monitoring role 3. Enhance institutional coordination Interjurisdictional coordination: Engage actively in ¸ ¸ ¸       Core; Provincial S interdistrict cooperation to deliver complementary services governments; MOHA Interjurisdictional coordination: Take anticipatory       ¸ ¸ ¸ SDM; Provincial S coordination measures with surrounding or nearby districts governments; MOHA Vertical coordination: Work with provincial government to Provincial S–M improve vertical alignment across levels of government governments; Sectoral ministries Intersectoral coordination: Integrate local sectoral plans into ATR/BPN; Bappenas S–M a common data and mapping platform Intersectoral coordination: Establish a national-level Bappenas; CMEA M platform for urban transformation led by the president O v er v ie w   27 TABLE OA.2  Matrix B: Policies for more connected places Multidistrict metro Nonmetro Single- Leading Periphery district institution(s) / Time BROAD RECOMMENDATION Core Urban Rural metro Urban Rural champion(s) horizon 1. Enhance integration within urban areas through operationalization of spatial planning including land management To support alignment of spatial and sectoral plans, Bappeda; SNGs; S consider aligning their preparation process timelines Bappenas; MPWH Scale up current efforts to improve technical capacity at ¸ ¸   ¸ ¸   Bappeda; BPN; M the local level, strengthening data collection and analysis Bappenas; BKPR; for evidence-based decision making in contexts of rapid Perum Perumnas urbanization Continue efforts to clarify property rights and improve ATR/BPN; M efficiency of land-management practices (including Bappeda; reforms to reduce transaction costs) Bappenas; MOHA; SNGs Ensure operationalization of plans by explicitly linking ATR/BPN; BKPR; M socioeconomic development outcomes to spatial planning BSN; MPWH Apply spatially enabled prioritization of city investments ¸ ¸   ¸ ¸   Bappeda; BKPR; M to match funding Bappenas; BPN; MPWH; Perum Perumnas Strengthen local government capacity to develop and Bappenas; L enforce regulatory systems that support integrated growth MPWH; Bappeda Expand use of capital investment planning and asset ¸ ¸   ¸ ¸   Bappeda; MPWH; L management tools to strengthen links between planning Bappenas; SNGs and financing decisions 2. Promote a holistic housing agenda to ensure access to adequate, affordable, and resilient housing with good access to basic urban services Strengthen local capacity to prioritize coordinated and ATR/BPN; S spatially driven actions in the housing sector, including Bappeda; effective land management Bappenas; MOHA; SNGs Strengthen local capacity to accelerate permitting processes MPWH; Bappeda; S and to enforce construction quality and resilience Bappenas; MOHA; standards SNGs Carry out an assessment of rental housing demand, supply, ¸ ¸   ¸ ¸   MPWH; Bappenas S and challenges to explore opportunities for expanding rental markets Expand support to mixed-used, mixed-income solutions to ¸ ¸   ¸ ¸   MPWH; Bappeda; S enhance integration and prevent segregation BKPR; BPN; Perum Perumnas Improve availability of well-located housing through MPWH; Bappeda; M information system and tools for spatial planning ATR/BPN; including location guidelines Perum Perumnas Table continued on next page 28  TIME TO ACT TABLE OA.2 Continued Multidistrict metro Non metro Single- Leading Periphery district institution(s)/ Time BROAD RECOMMENDATION Core Urban Rural metro Urban Rural champion(s) horizon Collaborate across ministries to design incentives for development of land for housing in suitable areas, closest MPWH; MOT; to availability of existing infrastructure and services ¸ ¸   ¸ ¸   Bappenas; M and where exposure to risks are minimized (such as Bappeda tax undeveloped land or constrain subsidies to central locations) MPWH; Bappeda; Support expansion of rental solutions to increase the ¸ ¸   ¸ ¸   BKPR; BPN; M supply of affordable housing for low-income households Perum Perumnas Continue efforts to improve the efficiency of the credit-link MPWH; Bappenas; M housing subsidy MOF; SMF; Banks Jump-start the housing microfinance sector to support the BI; MPWH; OJK; L housing needs of the informal sector SMF; MFI’s/Banks 3. Strengthen involvement of national government guidance of urban transport policy and systematically support a sustainable public transport investment program Develop a National Urban Transport Program to provide MOT; CMMA; clear policy, institutional, investment, and operational Bappenas; S guidelines for sustainable urban transport programs at the Bappeda; BPN; local level MPWH As part of the National Urban Transport Program, MOT; CMMA; systematically strengthen financial support from national MOF; Bappenas; S government to sustainable urban transport projects Bappeda Design incentives (or legal mechanisms) to promote MOT; CMMA; coordination across jurisdictions in metropolitan areas, for ¸ ¸ ¸       Bappenas; S example, through a single management authority Bappeda; MPWH Implement actions to manage demand and reduce explicit MOT; CMMA; and implicit subsidies to private car use (such as congestion ¸ ¸   ¸ ¸   S Bappeda; MPWH pricing) MPWH; MOT; Increase investments in nonmotorized transport and CMMA; Bappenas; S improve links to public transport systems Bappeda MOT; CMMA; Reform public transport to promote high-quality service Bappenas; that fosters city connectivity and integration and reduces M Bappeda; MPWH; private vehicle use intensity BPN Develop financing mechanisms to incentivize local Bappenas; MOT; governments toward coordinated land use and transport ¸ ¸   ¸     CMMA; Bappeda; M planning, coordination of supply and demand-side MPWH policies, and cross-jurisdiction coordination Bappenas; Promote transit-oriented development that encourages Bappeda; BPN; ¸ ¸   ¸     M densification in transport corridors of high demand MOT; CMMA; MPWH; BKPR Note: Leading institutions are shown in boldface. PPP = public–private partnership. O v er v ie w   29 Notes 11. Workers are considered low skilled if they have education below the elementary level, 1. All urban population figures cited in this medium skilled if they have education paragraph are based on data from the United between junior secondary and secondary lev- Nations World Urbanization Prospects: 2018 els, and high skilled if they have education revision database (https://population.un.org​ above the upper secondary level. /­wup/). 12. Similar results hold for PISA math test scores. 2. Based on historical GDP data from the 2018 13. Based on calculations using BPS data, version of the Maddison Project Database house price–to–(median) income ratios for (Bolt et al. 2018) (https://www.rug.nl­ /­ ggdc­ Bandung, Denpasar, and Jakarta are 12.1, /­h istoricaldevelopment/maddison­/­r eleases­­ 11.9, and 10.3, respectively. In contrast, data /­maddison-project-database-2018). from Demographia and Nomura point to 3. A country’s urbanization growth rate is given house price–to–income ratios of 7.7, 5.7, and by the growth rate of the share of its popula- 4.8 for Bangkok, New York, and Singapore, tion that lives in urban areas. For a discussion respectively. of why this rate rather than, for example, the 14. Based on data from the World Bank’s World simple growth rate of urban population, rep- Development Indicators (http://datatopics. resents the most appropriate metric of the worldbank.org/world-development-indicators). pace of urbanization, see box 1.2, chapter 1. 15. Following Health Ministerial Decree 4. Whereas during 1990–2000, Indonesia’s (Kepmenkes) No. 829/1999, a house is urbanization pace exceeded that of China, ­ considered overcrowded if the floor area per Thailand, and Vietnam, by 2010–17, its pace person is less than 8 square meters. lagged all three. 16. A megacity is defined as a city with 10 ­ million 5. Indonesia’s national statistics office, Badan or more inhabitants. Pusat Statistik (BPS, also known as Statistics 17. For more information, see https://www. Indonesia), classifies settlements as urban or tomtom.com/en_gb/trafficindex/. Rankings rural using a composite scoring system that based on 2016 data. considers population density, the structure of 18. In the analysis, congestion was defined as the local economy, and the extent to which a occurring when a journey’s travel time exceeds settlement has certain types of infrastructure the “free flow” travel time by 25  ­ percent, and amenities (see chapter 1). where the “free flow” travel time is the fastest 6. The decompositions of Indonesia’s urban reported travel time, according to the Google ­ population growth are by Wai-Poi et al. (2018). Maps API, at which the journey can be under- 7. The World Bank’s 2009 World Development taken during a typical day (typically, between Report (World Bank 2008b) defines areas of the hours of 2 a.m. and 3 a.m.). Redefining con- incipient urbanization as those in which about gestion so that it occurs whenever a journey’s 25 percent of the population lives in urban set- travel time exceeds the “free flow” time would tlements. Areas with urban population shares result in an approximate fourfold increase in of about 50 percent are at an “intermediate” the estimated costs of congestion. These figures stage of urbanization, and those that are at represent lower-bound estimates of the true an “advanced” urbanization stage have urban costs of congestion because they exclude esti- shares of about 75 percent or higher. mated costs associated with travel time uncer- 8. As described in more detail in chapter 4, real tainty (additional time that must be allocated consumption per capita is calculated by using to a trip to ensure that the vehicle reaches its the ratio of the poverty line of a given prov- destination at a specific time), vehicle operat- ince to the poverty line of Jakarta’s core (that ing costs due to additional starts and stops, is, DKI Jakarta) as a spatial price deflator. carbon monoxide and other emissions, public 9. This finding also holds true for island-regions health impacts from emissions, traffic collision and districts. Indonesia’s island-regions, as damage, and losses due to excess freight trans- defined in this report, are Jawa-Bali, Kalimantan, port time. Crucially, they also exclude indirect Maluku-Papua, Nusa Tenggara, Sulawesi and costs arising from the impacts of traffic conges- Sumatera. tion on both urban form and the overall level 10. As is evident from figure O.6, the bulk of the of urbanization that may constrain the realiza- increase in within-place inequality took place tion of positive agglomeration forces. prior to 2012; since that time, inequality lev- 19. See chapter 4 for a detailed discussion of this els have stabilized. evidence. 30  TIME TO ACT 20. For health facilities, accessibility is rated by worth US$770 million that ran from 2011 to respondents to Indonesia’s Village Potential 2017. Before the project, no reporting or inde- Statistics (PODES) survey as very easy, easy, pendent verification process was mandated on difficult, or very difficult. Households lacking subnational government use of specific pur- “very easy” or “easy” access to a facility are pose funds or compliance of completed work classified as “deprived.” with technical guidelines. Governments only 21. Controlling for access to services and house- submitted financial reports to the Ministry of hold characteristics, children in multidis- Finance stating that the funds had been spent, trict metro cores are taller and heavier for and no technical reporting was required. their age than children in nonmetro rural Because financial reports were submitted areas by 0.21 and 0.15 standard deviations, manually, sharing them among relevant minis- respectively. tries was delayed. The project was designed to 22. See chapter 1 of the report for a detailed dis- improve reporting, transparency, and account- cussion of urban population growth trends ability in the use of specific purpose funds. for the different types of place. 33. This platform would need to include all 23. Similar results hold when comparing relevant ministries such as the Ministry of Indonesia’s densities (per square kilometer of Finance, Ministry of Home Affairs, Ministry of land area) of main roads and railways with Agrarian Affairs and Spatial Planning, Ministry those of other countries. of Public Works and Housing, Ministry of 24. Annex OA sets out the tailoring of detailed Transportation, Ministry of Communications policy actions by type of place. and Information, and the National Geospatial 25. In chapter 3 of the report, it is estimated that Information Agency. Meanwhile, Bappenas a doubling of a measure of access to domestic could be assigned the critical role of technical markets for urban periphery districts is associ- secretariat and hub of the platform. ated with a statistically significant 2.9 percent 34. This move would require a change in the increase in worker productivity in regression overall decentralization hierarchy and Law analysis that controls for a wide range of observ- 23. It would also require specific transfers to able characteristics of both workers and the jobs the provincial governments that take on such they occupy. For rural periphery districts, the functions. Finance could be achieved through effect of access to domestic markets on produc- the voluntary agreement of districts to allo- tivity is significant at the 12 percent level. cate some part of their funding to provinces, in 26. For nonmetro urban areas in 2014–16, own- accordance with the functions being taken on. source revenues accounted for about 5 percent 35. These multigovernment enterprises would of total revenue. The corresponding figures have the constituent district governments on for rural periphery and nonmetro rural areas their boards. Financing could come through were 3.4 percent and 1.2 percent, respectively. a mix of user fees, contributions from mem- 27. Using U.S. case studies, mass rail system costs ber subnational governments, precept pow- are US$104.5/km versus US$8.4/km for bus ers, central transfers, and borrowing. rapid transit (Cervero 2013). 36. For a description of Mexico’s National 28. This figure is based on December 2018 Housing Registry, see Kim and Zangerling Ministry of Finance data. (2016). 29. This is particularly true for transport invest- 37. For more information, see http://vidabekasi​ ment. The share of subnational governments .com/. in total transport investment increased from 38. See chapter 3 of the full report. about 25 percent in the mid-1990s to more than 50 percent in the second half of the 2000s, whereas the central government share underwent an inverse evolution. References 30. See chapter 6 for a full discussion of this Bolt, J., R. Inklaar, H. de Jong, and J. L. van analysis. Zanden. 2018. “Rebasing ‘Maddison’: New 31. For example, partly because of the lack of Income Comparisons and the Shape of Long- base maps, only 90 of 1,400 detailed spatial run Economic Development.” Working Paper plans for targeted priority areas nationwide 10, Maddison Project, Groningen Growth and have been developed and issued. Development Centre, University of Groningen, 32. The Local Government and Decentralization Groningen, Netherlands. https://www­.­rug­.­nl/ project was a World Bank–funded loan project ggdc­/­historicaldevelopment­/­maddison­­/­research. O v er v ie w   31 Bosker, M., U. Deichmann, and M. Roberts. 2018. Meijer, J. R., M. A. J. Huijbegts, and A. M. Schipper. “Hukou and Highways: The Impact of China’s 2018. “Global Patterns of Current and Future Spatial Development Policies on Urbanization Road Infrastructure.” Environmental Research and Regional Inequality.” Regional Science and Letters 13 (6): 064006. Urban Economics 71 (2018): 91–109. 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Bank, Washington, DC. 32  TIME TO ACT ———. 2017b. “Indonesia: Regional Infrastructure ———. 2018c. “People’s Perspectives of Urban D e v e l o p m e n t F u n d P r o j e c t .” P r o j e c t Poverty and Rural-to-Urban Migration.” Appraisal Document PAD1579, World Bank, Background paper for this report, World Bank, Washington, DC. Washington, DC. —— —. 2018a. Indonesia Infrastructure Sector World Bank and DRC (Development Research Assessment Program. Indonesia: World Bank. Center of the State Council of the People’s ———. 2018b. Mapping of Indonesia’s Civil Republic of China). 2014. Urban China: Service. ID: P163712. Analytics of Indonesia’s Toward Efficient, Inclusive, and Sustainable Civil Service. Jakarta: World Bank. Urbanization. Washington, DC: World Bank. O v er v ie w   33 Environmental Benefits Statement The World Bank Group is committed to reducing its environmental footprint. In support of this commitment, we leverage electronic publishing options and print- on-demand technology, which is located in regional hubs worldwide. Together, these initiatives enable print runs to be lowered and shipping distances decreased, resulting in reduced paper consumption, chemical use, greenhouse gas emissions, and waste. We follow the recommended standards for paper use set by the Green Press Initiative. The majority of our books are printed on Forest Stewardship Council (FSC)– certified paper, with nearly all containing 50–100 percent recycled content. The recy- cled fiber in our book paper is either unbleached or bleached using totally chlorine-free (TCF), processed chlorine–free (PCF), or enhanced elemental chlorine–free (EECF) processes. More information about the Bank’s environmental philosophy can be found at http://www​.worldbank.org/corporateresponsibility. Indonesia has urbanized rapidly since its independence in 1945, profoundly changing its economic geography and giving rise to a diverse array of urban places. These places range from the bustling metropolis of Jakarta to rapidly emerging urban centers in hitherto largely rural parts of the country. Although urbanization has produced considerable benefits for many Indonesians, its potential has only been partially realized. Time to ACT: Realizing Indonesia’s Urban Potential explores the extent to which urbanization in Indonesia has delivered in terms of prosperity, inclusiveness, and livability. The report takes a broad view of urbanization’s performance in these three key areas, covering both the monetary and nonmonetary aspects of welfare. It analyzes the fundamental reforms that can help the country to more fully achieve widespread and sustainable benefits, and it introduces a new policy framework— the ACT framework—to guide policy making. This framework emphasizes the three policy principles of Augment, Connect, and Target: • Augment the provision and quality of infrastructure and basic services across urban and rural locations • Connect places and people to jobs and opportunities and services • Target lagging areas and marginalized groups through well-designed place-based policies, as well as thoughtful urban planning and design. Using this framework, the report provides policy recommendations differentiated by four types of place that differ in both their economic characteristics and the challenges that they face— multidistrict metro areas, single-district metro areas, nonmetro urban areas, and nonmetro rural areas. In addition to its eight chapters, Time to ACT: Realizing Indonesia’s Urban Potential includes four spotlights on strengthening the disaster resilience of Indonesian cities, the nexus between urbanization and human capital, the “invisible” crisis of wastewater management, and the potential for smart cities in Indonesia. If Indonesia continues to urbanize in line with global historical standards, more than 70 percent of its population will be living in towns and cities by the time the country celebrates the centenary of its independence in 2045. Accordingly, how Indonesia manages this continued expansion of its urban population—and the mounting congestion forces that expansion brings—will do much to determine whether the country reaches the upper rungs of the global ladder of prosperity, inclusiveness, and livability. SKU 33265