Development in Practice

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Green economy post COVID-19: insights from

Indonesia

Berly Martawardaya, Ari Rakatama, Dhenny Yuartha Junifta & Dinda Ayu
Maharani

To cite this article: Berly Martawardaya, Ari Rakatama, Dhenny Yuartha Junifta & Dinda Ayu
Maharani (2022) Green economy post COVID-19: insights from Indonesia, Development in
Practice, 32:1, 98-106, DOI: 10.1080/09614524.2021.2002817

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DEVELOPMENT IN PRACTICE
2022, VOL. 32, NO. 1, 98–106
https://doi.org/10.1080/09614524.2021.2002817

VIEWPOINT

Green economy post COVID-19: insights from Indonesia

Berly Martawardaya, Ari Rakatama , Dhenny Yuartha Junifta, and Dinda Ayu Maharani

ABSTRACT ARTICLE HISTORY

The COVID-19 pandemic has triggered a global economic crisis, including Received 26 October 2021
in Indonesia, demonstrating the vulnerability of the country's economic Accepted 2 November 2021
structure. However, the crisis may offer an opportunity to “build back
KEYWORDS
better” and transition to a greener economy. Using qualitative data Green economy; sustainable
analysis, this study aims to analyse contemporary issues on green development; COVID-19;
economy implementation in Indonesia. The authors found that Indonesia; economic
transitioning to a green economy has been included in the national recovery
constitution and the 2020–2024 development plan. However, the
economic recovery program does little to address environmental issues,
demonstrating a lack of consistency between planning and
implementation despite the pandemic. The country’s economy still
heavily depends on extractive sectors and primary commodities that
negatively affect the environment. The opportunity to strengthen the
green economy, which included the infusion of a sizeable government
stimulus, was not fully utilised. This study suggests several policy
options to promote green-economy transition including attracting
green investment to Indonesia, switching from primary to secondary
and tertiary commodities, suspending incentives for the extractive
sectors and coal-fired power plants, and maintaining policy and
regulation consistency related to the green economy.

Introduction
The COVID-19 pandemic caused a deep economic contraction for the world economy, and Indonesia
was no exception. The country experienced an economic contraction of −5.32% (year-on-year) in the
second quarter of 2020, and a −2.07% contraction for the entire year (Sihombing 2020). The contrac-
tion was the largest since the 1998 Asian financial crisis. In response to the current crisis, the Indo-
nesian Government has allocated about $48.7 billion of fiscal stimulus under the National Economic
Recovery (NER) programmes (Medina 2020). Although on a lighter scale than neighbouring countries
such as Malaysia and the Philippines, Indonesia has also imposed restrictions on people’s mobility to
slow the spread of the COVID-19 virus. However, this restriction led to a reduction of lower–middle-
class income, increasing the country’s poverty level and slowing economic growth. About 3.5 million
workers were affected, and up to 5.5 million people were unemployed by the end of 2020 (NDPA
2020).
The economic crisis due to COVID-19 illustrates the importance of developing a new, greener, and
more sustainable economy. Economic development without concern for the environment has
proven in the long run to be a burden on the economy (Martenson 2011). Environmental health,
for example, plays an important role in preventing the spread of infectious diseases. Deforestation,
in the service of intensive agricultural and extractive industries such as plantations and mining oper-
ations, has contributed to increased physical contact between wildlife carrying viral pathogens and

CONTACT Ari Rakatama [email protected] Jl. Batu Merah No. 45, Pejaten Timur, Pasar Minggu, Jakarta Selatan,
12510, Indonesia.
© 2021 Informa UK Limited, trading as Taylor & Francis Group
 DEVELOPMENT IN PRACTICE 99

humans. This increased contact facilitates the transmission of viral infections like COVID-19 from
animals to humans (Dasgupta 2021).
The shift towards a green economy has accelerated in recent years after fears that business-as-
usual policies would increase the earth’s temperature by more than 3°C, leading to great uncertainty,
instability, and climate destruction (Hepburn et al. 2020). Green economic development is also a
crucial part of climate adaptation strategies (Schipper et al. 2020). Reflecting on the 2008 economic
crisis, countries that allocated a significant portion of their stimulus funds to green sectors experi-
enced a faster and stronger recovery (Robins, Clover, and Singh 2009a). Therefore, this crisis is an
opportunity to transform the Indonesian economy into one that is more inclusive, competitive,
and sustainable.
This study analysed contemporary issues in Indonesia by discussing the green economy concept in
the country’s constitution and planning documents, observing the realities of green economy
implementation, and suggesting policy recommendations to facilitate Indonesia’s transition to a
green economy. The study utilised a qualitative approach and drew upon primary and secondary
sources. Primary data were collected through four virtual focus group discussions between September
2020 and March 2021. Participants were drawn from governmental, private sector, academic, and civil
society organisations. Additionally, secondary data were derived from literature reviews, statistical
databases, and relevant regulations.

The Green economy concept in the Indonesian constitution

The green economy is defined as one that improves human well-being and social equity, while at the
same time significantly reducing natural risks and resource scarcity (Martin et al. 2012). The green
economy sees ecosystem, economy, and human well-being as interrelated and inseparable. In the
Indonesian context, the integration of these aspects has long been reflected in the economic
concept of Pancasila.1 The Pancasila economy is based on the Pancasila ideology, which champions
the principles of kinship and national cooperation (Mubyarto 1987). The main characteristics of the
Pancasila economy are similar to those of the green economy (Agusalim, Karim, and Saefuddin 2014).
Pancasila’s concept of egalitarianism is in line with the inclusiveness promoted by the green
economy. The spirit brought by the Pancasila economy is economic justice. In addition, Pancasila
promotes business behaviour that accounts for ethical and religious values. Business practices are
ideally carried out for the common good and not for individual prosperity alone (Kibert et al. 2012).
The official policy regarding the economic–environmental–societal balance is outlined in the
National Mid-Term Development Plan (NMTDP) of 2020–2024. The government plans to maintain
a balance between economic growth, emission reduction targets, and the protection of natural
resources and the environment. To achieve this plan, the government has set three policy directions
which include improving environmental quality, increasing disaster and climate resilience, and
developing low-carbon alternatives (GoI 2020). This policy is a response to natural resource depletion
and environmental degradation. Indonesia might lose 50% of its forest cover – the ideal habitat for
endangered species – by 2045. The available water supply is also expected to shrink anywhere from
6% to 9.6% by 2045 (NDPA 2020).
Goals to achieve national priorities in environmental issues include preventing pollution and the
depletion of natural resources, strengthening law enforcement, increasing climate resilience,
improving energy development, land restoration, and waste management, and developing green
industries for coastal areas. These goals are expected to help Indonesia achieve a better Environ-
mental Quality Index (EQI) by 75–78, reduce the ratio of economic losses due to disaster impacts
by 0.3% of Gross Domestic Product (GDP), and reduce greenhouse gas (GHG) emissions by 27.3%
by 2024 (NDPA 2020). In addition, Indonesia has committed to outlining climate change mitigation
and adaptation actions in the Nationally Determined Contribution document submitted to the
United Nations Framework Convention on Climate Change. The target for reducing GHG emissions
in Indonesia is 29% by its own efforts and by 41% with international support by 2030 (GoI 2016).
100 B. MARTAWARDAYA ET AL.

The realities of green economy implementation in Indonesia

The NER does not address environmental issues
The COVID-19 pandemic has escalated green economy initiatives, especially in implementing green
recovery through fiscal allocations for post-pandemic recovery. The main objectives of the recovery
package are to stabilise expectations of economic actors, improve confidence levels, and channel
savings into productive investments that balance physical, human, social, and natural assets consist-
ent with global goals on climate change (Hepburn et al. 2020). However, in the Indonesian context,
although environmental development has been listed in the national development plan, the NER
programme addresses environmental issues as an afterthought at best. NER activities are dominated
by short-term recovery initiatives without clear direction for a green economy transformation. The
only activity labelled as a green stimulus is a budget of about $166 million for biodiesel programmes
(Carnell et al. 2020). However, the sustainability of biodiesel itself is questionable due to a large
amount of GHG emissions from deforestation, forest fires, and land-use changes caused by the
palm oil plantation activities necessary for producing biodiesel.
As noted, the COVID-19 crisis provides momentum for a green economy transformation and to
build back better for the long term. But a look back at another recent global crisis may be instructive.
Similar to the recovery after the subprime mortgage crisis in 2008 (Robins, Clover, and Singh 2009b),
green economy and low-carbon development have not been priorities in the post-crisis recovery
programme in Indonesia. The green stimulus index in Indonesia is among the lowest in G20
countries, including that of other developing countries like Colombia, Brazil, and South Africa (Vivi-
deconomics 2021). Referring to the 2008 global financial crisis, global GHG emissions fell by 1.4%
(Robins, Clover, and Singh 2009b). However, in line with the economic recovery that occurred in
the following year, GHG emissions increased by about 5.9% (Peters et al. 2012). The same could
happen for the current crisis.

The dominance of the extractive sectors and primary commodities

Although Indonesia has stated its plans for low-carbon development, extractive sectors such as plan-
tations and mining operations still contribute heavily to the structure of the Indonesian economy.
The role of extractive sectors in Indonesia is greater than that of ASEAN countries such as Malaysia,
Thailand, and Vietnam. In 2019, primary commodities constituted 39.2% of Indonesia’s total exports.
Figure 1 shows Indonesia’s primary commodity exports to be much higher than Vietnam’s, which
exports just 2.7% of primary commodities (UNComtrade 2020).

Figure 1. Share of primary commodity export by countries (%) (UNComtrade 2020).

 DEVELOPMENT IN PRACTICE 101

The dependence on extractive sectors also causes massive environmental damage, especially to
forest cover. From 2001 to 2019, the total forest cover lost in Indonesia reached about 27.7 million
hectares. Most of these losses are caused by land conversion for monoculture plantations and
mining that produces primary commodities (Hansen et al. 2013). Economic dependence on
primary commodities and extractive sectors also increases GHG emissions that trigger climate
change, threaten economic productivity, and reduce GDP (Woetzel et al. 2020). Therefore, transition-
ing away from dependence on natural resources is no longer an option but a necessity to survive.

The inclusive economy as rhetorical tools

In the Indonesian context, economic growth is the main measure of a country’s progress. Indonesia
has set an economic growth target of an average of 4.5% to 6% per year (GoI 2020). To achieve the
target, the government tries to boost investment. However, the limited financial capacity of the gov-
ernment and State Owned Enterprises (SOEs) has forced the government to attract private and
foreign direct investments. Unfortunately, the growth of realised investment is not in line with
the growth of job opportunities. The ratio of employment to investment continues to decline. In
2014, every $70 billion of investment was able to absorb about 3,100 workers. However, by 2020,
that figure had fallen to about 1,400 workers for the same investment number (Martawardaya
et al. 2021).
Furthermore, the dominance of extractive sectors in Indonesia’s economic structure makes these
sectors an easier and more attractive investment choice (Esfahbodi, Zhang, and Watson 2016). This
also results in actors who could influence policymakers. In the extractive sectors, the government
plays a powerful role as an institution that issues permit for actions like exploration, construction,
and operations. In addition, governmental regulations and infrastructures are needed to expand
the market and to improve business continuity. Therefore, proximity to policymakers is crucial to
ensure that business interests are accommodated. This condition leads to so-called “crony capital-
ism,” whereby individuals and businesses with political connections and influence are favoured
and derive wealth from close ties to the government. Such businesses include the extractive
sectors (e.g. minerals and coal, palm oil, forestry, and oil and gas). In this case, Indonesia is ranked
seventh in the world for the number of billionaires whose wealth is supported by their connections
to the authorities (TheEconomist 2016). Furthermore, corruption among authorities in Indonesia is a
cause of income inequality (Policardo, Sanchez Carrera, and Risso 2019). As a result, national devel-
opment which targets economic growth would only move Indonesia’s economy further away from
equitable distribution. This would only give rise to new conglomerates isolated from most of the
community and less friendly to the environment. Future-oriented economic development would
need to take everyone into account to ensure equity and justice are important principles of a
green economy (Creech et al. 2014).

Inconsistent regulations
Current policies continue to increase Indonesia’s economic dependence on the extractive sector.
Inconsistency among policies, plans, and implementation persists. For example, coal production is
still targeted to increase to support the existing capacity of Steam Power Plants (SPP). Meanwhile,
the government also plans to increase the production of renewable energy and its share in the
national energy mix from 23% in 2025 to 31% in 2050 (MoEMR 2020b).
From the government perspective, regulation is often seen as an obstacle to attracting invest-
ment. Therefore, the Omnibus Law for Job Creation was issued in 2020. This law amends 70 laws
and promotes easing barriers to investment and creating jobs. However, although the law’s
stated goal is to create new job opportunities by attracting investment, the law is a blow to the
labour movement. Major labour organisations in Indonesia strongly oppose the law because
several articles are beneficial to investors but detrimental to labour (Caraway 2021).
102 B. MARTAWARDAYA ET AL.

The law furthers the exploitation of natural resources while side-lining protections for the
environment. This can be seen from the abolition of the requirement for environmental permits
in establishing new businesses or projects for activity deemed to be low risk in a framework of
risk-based approach. The law also restricts community participation in preparing the Environmental
Impact Assessment. Further exploitation through various regulatory incentives given to extractive
business players will only hinder the transition towards a green economy.

Towards green economy transformation

Attracting green investment to Indonesia
Mixed evidence has been found regarding the role of foreign direct investment (FDI) on the green
transition. A positive connection between environmental degradation and income is found in high-
income countries, as well as Africa (Bokpin 2017; Saidi and Hammami 2017). There seems to be a two-
way relationship between FDI and the environment in a study of Middle East and North African
countries, with both aspects influencing each other (Abdouli and Hammami 2017). Other studies
suggest that foreign direct investments could promote a country’s green growth through both econ-
omic and environmental efficiency (Yue, Yang, and Hu 2016). Mahmood et al. (2019) support this
finding, suggesting that quantitative and qualitative investment incentives could promote a
cleaner environment. Foreign direct investment can introduce green concepts such as green build-
ings into the domestic economy, as countries comply with the international certification standards in
hopes to attract more FDIs (Devine and McCollum 2019).
Foreign investment is indeed crucial for Indonesian economic growth. However, investments cur-
rently entering Indonesia tend to be concentrated in the extractive and primary sectors with a low
employment ratio (ICB 2020). The government should be more selective regarding foreign invest-
ment and shift its focus from quantity to quality. Paradigm shift and diversified investment strategies
are necessary to rebalance economic, environmental, and social-sustainability priorities (Perry 2020).
There is a current shift in global investors’ priorities from profit-only to sustainability and ethical
values, a growing trend known as Environmental, Social, Governance (ESG) (Caplan, Griswold, and
Jarvis 2013; Drei et al. 2019). For example, the construction of new coal mines and SPPs have
made it difficult to find funding support because many financial institutions have left the coal
business (Burton and Nangoy 2019). The government’s efforts to increase investment by ignoring
environmental aspects can hinder opportunities to obtain high-quality and high-value investments.
Therefore, the government needs to improve the investment climate so it is more environmentally
friendly, preventing Indonesia from falling behind the current global investment trend.

Suspending incentives for the extractive sector and coal power plants
In response to the COVID-19 pandemic, the government allocated stimulus with the potential to
negatively impact the environment. For example, stimulus funds were made available for SOEs oper-
ating in the extractive sectors, for developing infrastructure in the energy and transportation sectors,
and for subsidising biodiesel and electricity. To reduce dependence on such industries, governmental
incentives to the extractive sector must cease.
Incentives for green sectors, already limited, are meaningless if the extractive sectors also receive
incentives that grow at comparable or even faster rates. For example, from year to year, new and
renewable energy continues to experience stable growth, but this expansion also competes with
the increasing share of coal power plants in national energy generation. Therefore, the challenge
to improve the share of clean and renewable energy in the national energy mix is not only to
promote the use of these sources but to reduce the growth of coal power plants as well. So far,
the government has pledged to cease the construction of new coal power plants beginning in
2023 (Jong 2021).
 DEVELOPMENT IN PRACTICE 103

As interest in financing coal plants from international financial institutions wane, the coordinating
minister of maritime affairs and investment has announced that Indonesia will stop building coal
plants from 2023 and will only build renewable energy plants after the 35 GW project concludes
(CNNIndonesia 2021; Widyastuti 2021). The government has also made attempts to transform its
older existing coal plants into a more environmentally alternative by utilising co-firing using
biomass (MoEMR 2020a). These co-fired coal plants will replace a certain percentage of the coal
with trash and wood waste. A coal plant with 1% co-firing will need 17,470 tonnes of waste or 5
million tonne wood pellets every year, equivalent to 738 thousand tonnes of waste pellets. The
amount of biomass used in each coal plant varies depending on the plant, reaching 20% in small
coal plants (Tampubolon et al. 2021). The government should ensure the sustainability of the
needed biomass to continue utilising the co-firing method.
Other than ceasing new coal plants and utilising co-firing methods, the government could retire
the existing coal plants faster than their 30–40-year lifespan. The retirement of coal plants is highly
dependent on risk and money. A shut down power plant would not bring in revenue, but the costs
persist, as closing a coal plant includes decommissioning costs such as demolition and redevelop-
ment costs (Malley 2016). A coal retirement mechanism, a fund contributed to by investors, could
assist with acquiring and retiring existing coal plants. As the coal retirement mechanism is used
to purchase existing coal plants from their owners, the proceeds from the coal plants are used to
pay back the investors for 10–15 years before closing it down. Meanwhile, the original owners of
the coal plants are given an incentive to use the proceeds from the coal plant sale to invest in renew-
able energy plants (Kanak 2020).

Switching from primary to secondary and tertiary commodities

The government needs to accelerate the transition from primary to secondary or tertiary export com-
modities with higher added value.2 Currently, the Indonesian economy is still very dependent on the
primary sector. About 40% of Indonesia’s exports are still primary commodities (UNComtrade 2020).
The dominance of the primary sector paved the way for deregulation in the sector, sacrificing the
environment in the process. From an economic perspective, primary commodities have the
lowest added value. Therefore, exporting primary commodities means losing opportunities to
obtain higher added value by processing the commodities into secondary or tertiary commodities.
The dependence on primary commodities also results in a more vulnerable economy. Most
primary commodities rely on increasingly depleted natural resources such as coal. By depending
on non-renewable natural resources, economic growth is vulnerable to the availability of these
resources. In addition, other countries have begun switching from coal to renewable energy
sources. In the Indonesian context, it might be impossible to achieve economic growth without
using natural resources, but achieving economic growth without or with limited GHG emissions is
still possible (Hickel and Kallis 2020).

Consistency of policies and regulations related to the Green economy

The government should maintain policy and regulation consistency related to green economy
transformation. The NMTDP 2020–2024 has already stated that the move towards a green
economy is one of Indonesia’s national priorities. The plan also features the policy direction and
strategy to achieve its goals. However, the government’s implementation policy has yet to make
the environment’s well-being a high priority. Economic growth and environmental conservation
are still seen as trade-off. Still, the environmental and social costs associated with major regulations
and government programmes must be calculated. Unfortunately, regulations that protect the
environment are seen as a barrier to investment by policymakers. The Omnibus Law for Job Cre-
ation is an example of neglecting environmental aspects to boost the Indonesian economy
through investment.
104 B. MARTAWARDAYA ET AL.

Concluding note
The trajectory of Indonesia’s economic policy still prioritises economic growth through primary com-
modities and extractive sectors. Consequently, exploitation and destruction of natural resources con-
tinue to occur on a large scale. Unlike many countries after the 2008 crisis, Indonesia failed to pursue
a long-term green transformation as an economic recovery strategy. At the same time, the COVID-19
pandemic has exposed how vulnerable economic growth has been. Therefore, the government must
focus on carrying out a long-term green transformation that also provides short-term economic and
employment benefits before it is too late.

Notes
1. Pancasila is the official, foundational philosophical theory of Indonesia and is composed of five principles held to
be inseparable and interrelated: belief in the Almighty God, just and civilised humanity, the unity of Indonesia,
democracy guided by the deliberations between representatives, and social justice for all of Indonesia’s people.
2. A primary commodity is an unprocessed commodity, extracted directly from natural resources such as coal and
crude palm oil. Meanwhile, secondary commodities are the products produced from primary commodities to
meet market requirements. For example, the process of refining crude palm oil generates a range of products
such as biofuel.

Disclosure statement
No potential conflict of interest was reported by the authors.

Funding
This work was supported by Greenpeace Indonesia.

Notes on contributors
Berly Martawardaya is an economist who has earned two master’s degrees in economics from the Vrije University of
Amsterdam in the Netherlands and the University of Siena in Italy. He is currently pursuing a PhD in Economics from the
University of Siena in Italy. He is interested in several topics in economics, namely development economics, public
sector finance, environmental economics, and behavioural economics. He is also a lecturer at the Department of Econ-
omics, University of Indonesia. He teaches several courses, such as Indonesian Economy, Research Methodology,
Environmental Economics, and Natural Resources. In addition, he also teaches at the Master Program of Planning
and Public Policy, University of Indonesia. Currently, he is serving as Program Director of the Institute for Development
of Economics and Finance (INDEF). As an economist, he actively writes his views on the economy through national
newspapers and scientific journals. His LinkedIn: https://www.linkedin.com/in/berly/.
Dr Ari Rakatama is an Environmental and Resource Economist with more than 20 years of experience working in the
field of forestry, environment, agriculture, renewable energy, clean-tech, SMEs, and sustainable development. He cur-
rently works at the Indonesian Ministry of Environment and Forestry. He is also a Researcher at the Institute for Devel-
opment of Economics and Finance (INDEF), and an expert for several organisations such as the Australian Consortium
for “In-Country” Indonesian Studies (ACICIS), E.Co. Ltd Group, and NIRAS-LTS International. He is experienced in pro-
viding consultancy services for prominent international organisations such as UNIDO, GIZ, GGGI, FCDO, and Green-
peace. He holds a PhD in Environmental and Resource Economics from the University of Western Australia, MSc in
Environmental and Energy Management from the University of Twente (Netherlands), and BSc in Agricultural
Social Economics from the University of Lampung (Indonesia). He has had published works, and acted as a reviewer,
in some international reputable scientific journals such as World Development, Journal of Environmental Manage-
ment, Land Use Policy, and Forest Policy and Economics. His LinkedIn: https://www.linkedin.com/in/ari-rakatama-
24b1377b/.
Dhenny Yuartha Junifta is a PhD scholar at the University of Indonesia. He is also a researcher at the Center of Food,
Energy and Sustainable Development – Institute for Development of Economics and Finance (INDEF). He has been
active in research and organisations since he was in college. Dhenny has more than five years of research experience
with a focus on natural resource economics and digital innovation. Various research he has been conducted includes
mainstreaming climate change issues in Indonesia, fiscal budget mapping for low carbon development in Indonesia,
 DEVELOPMENT IN PRACTICE 105

bridging for the new Indonesian economy (green, inclusive, and sustainable), special autonomy and resources curse in
Papua and West Papua Province. Together with several NGOs, he also advocates for better climate changes policy and
inclusiveness. Some of his previous positions are an assistant to the Presidential Special Staff for Economic Affairs, an
expert at the Ministry of Villages, Development of Disadvantaged Regions, and Transmigration, and a research assistant
at the Center for Economic Development and Population Studies, Brawijaya University (Indonesia).
Dinda Ayu Maharani is a research assistant at the Institute for Development of Economics. She holds a Bachelor of Econ-
omics degree from Universitas Padjadjaran. Her main research focus comprises environmental economics and develop-
ment economics. She has previously assisted in research projects on the green economy, green bonds, and quality
investment.

ORCID
Ari Rakatama http://orcid.org/0000-0001-8271-5736

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