Indonesia’s provinces and islands have varying levels of development, and this is greatly influenced by the existing transport infrastructure. At project appraisal, the density of the national road network was relatively low and significantly lower in less developed areas, although the country overall had a vast network of roads.
By 2012, the Indonesian economy had recovered from the 2008 global financial crisis, with gross domestic product (GDP) growth above 6%, the debt-to-GDP ratio declining, the fiscal deficit below 2% of GDP, and the primary balance in surplus. Inflation was low in comparison to previous periods and the current account was in surplus.
The Citarum River Basin (CRB) in West Java, Indonesia is considered by the government as the most strategic river basin in the country. As of 2008, it provided 80% of Jakarta’s water supply, supported more than 28 million people and 20% of the country’s industrial output, produced 1,400 megawatts of hydropower, and irrigated close to 400,000 hectares that produced 5% of Indonesia' rice.
During 2000–2005, infrastructure investments in Indonesia dropped to an annual average of 3% of gross domestic product (GDP), from 8% of GDP during 1995–1997. Private infrastructure investment fell sharply from 1.8% of GDP during 1995–1998 to 0.5% of GDP in 2000–2005.
Underdeveloped infrastructure and poor domestic and international connectivity prevented Indonesia from achieving its growth potential. Furthermore, the pace of economic growth and job creation was insufficient to reverse the declining poverty reduction rate and widening rural-urban disparity as well as close the socioeconomic gap between the western and eastern regions.
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