This case study illustrates Indonesia's progress in governance. The story describes the nature of the progress, analysis of the factors that have contributed to progress and lessons for policy makers.

Indonesia is the world’s fourth most populous state, rich in natural resources, the largest Muslim-majority nation and a significant player in one of the world’s fastest growing regions. It has emerged from a decade of financial, political and environmental crises and is now recognised as an important partner in attempts to address global challenges. For more than three decades, Suharto’s New Order regime ruled the country unencumbered by any effective system of checks and balances, often protecting the interests of a narrow subset of Indonesian society. In the end, expanding gaps between different socioeconomic, cultural and geographic groups of the diverse Indonesian population, aggravated by the economic crisis of 1997/98, became untenable.

Since then, Indonesia has transformed from a highly militarised and centralised authoritarian state into a relatively open, stable and democratic one. The country has pursued an ongoing and wide-ranging reform programme that includes aggressive decentralisation, designed to devolve greater amounts of responsibility and authority to local levels, and significant changes to the way formal government institutions work.

The road to reform has not always been smooth. While much has been achieved, many of the traditional ‘good governance’ benefits expected by donors, including strengthened voice, increased accountability, reduced corruption and improved service provision, have yet to occur in many places. Practical challenges of corruption, patron–client relations and ‘money politics’ remain significant. Nevertheless, the case of Indonesia demonstrates that institutional arrangements can lead the state to act in ways that benefit the general population.