Sustainability |

Indonesia Could Invest in Sustainable Development through Incentive to Village, CPI Reports

SUSTAINABILITY | 21 January 2021
The recent report from Climate Policy Initiative (CPI) offers a solution to Indonesian green development by enhancing the capacity of the local villages. Photo courtesy of Climate Policy Initiative)/NOW!JAKARTA

As a strategic archipelagic nation known for its rich biodiversity, Indonesia has promised to reduce its carbon emissions by 41% over the next decade but this endeavor really should serve all 264 million people across 17,000 islands by starting to enhance the capacity as well as participation from villages across the region, Climate Policy Initiative’s recent study found.

In the post-Covid-19 pandemic, international communities across the globe have been discussing issues around the future of society, and among the solutions they found is by looking at the potential of land use in rural areas and raising concerns on counter-urbanisation. This report released by CPI added more dimension to this emerging topic by examining sustainable development with a viewpoint of decentralisation and the future of villages.

Based on the report titled Indeks Desa Memabangun Plus (IDM+): Enhancing Direct Incentives for Sustainable Land Use in Indonesian Villages, the research institute proposes this advanced policy thinking to the government by recommending the utilization of a sustainable land use index to develop the capacity of those villages that can contribute much to a more inclusive and extensive ecological sustainability as well as to tackle climate change.

The index which when paired with fiscal transfers, will directly reward villages that have the highest environmental performance. It builds on existing, widely used instruments for ease in implementation and avoids lengthy bureaucratic adaptations and training to the wider community in different locations.

As a part of the report series under a sustainable land use programme in East Kalimantan led by The Nature Conservancy with funding by the German Ministry of Environment and Nuclear Energy, the study highlights that villages in Indonesia tend to be left behind in sustainable development. On the other hand, prioritising sustainable goals in villages especially those who have existing models of running sustainability often hand in hand across different generations.

The role of the government is to create policies that are able to enhance village capacity with performance-based incentives. It proposes a two-part approach for a potentially sweeping, but relatively practical reform to encourage villages across Indonesia to adopt sustainable practices.

“There are fantastic initiatives right now to reform fiscal transfer mechanisms both at national and sub-national levels. But to support this, there needs to be a comprehensive evaluation index, to assess village performance. But we want to avoid creating an entirely new index, we want to avoid bureaucratic disruption. The solution is to tweak the existing IDM, already widely used by villages, and enhance it with sustainability indicators,” said Tiza Mafira, Associate Director, Climate Policy Initiative.

The first part of the approach recommends that the current relevant indices are known as Village Development Index (IDM) need to be enhanced to create better sustainable indicators that are applicable to all villages across Indonesia, despite differences in natural resource characteristics. The second part of the approach recommends that the new index or IDM+ becomes the basis for new fiscal transfer instruments to incentivise villages to achieve Indonesia’s sustainability goals.

The study further discovered three main findings as a baseline of the solution. First, existing development indicators and evaluation tools are inadequate for aligning environmental sustainability goals to the village level.

"The evaluation indicators developed by the central government for villages cannot measure village environmental performance, because they focus more on measuring socio-economic aspects and disaster resilience. Meanwhile, key issues are missing, such as food security and renewable energy,” Mafira stated.

Second, despite the existence of a national framework for sustainable development goals (SDGs), there is no evaluation indicator that will result in fiscal transfers to villages. “It makes a difference when villages know that their sustainability performance will be rewarded by incentives. We have seen more uptake on the idea of fiscal transfers based on good ecological conditions in recent years. It is time that villages are brought into this scheme.”  she added.

According to Mafira, the new fiscal transfer mechanisms need to be based on ecological indicators that can be applied universally in all regions but minimise bureaucratic disruption. “Once implemented effectively, IDM+ has the potential to substantially green the subnational budget structure, all the way into villages. It could also lead to subnational development in line with Indonesia’s sustainability goals, ultimately helping Indonesia grow green.” Marifa closed her statements.


 CPI is an analysis and advisory organisation with deep expertise in finance and policy. Its mission is to help governments, businesses, and financial institutions drive economic growth while addressing climate change.


For more information about Climate Policy Initiative, visit climatepolicyinitiative.org