On January 25, the U.S. State Department issued a global cable directing an immediate pause on current and new foreign aid spending and programs.
This follows the Executive Order (EO) that mandates a budget review of U.S. foreign assistance, sparking widespread uncertainty among international development organizations.
While the order does not mean an absolute halt to all funding, it significantly disrupts USAID’s financial pipeline, particularly in countries like Indonesia, where U.S. aid has played a pivotal role in areas such as disaster relief and climate adaptation.
Understanding the Scope: What’s Stopping and What’s Not
Unlike an across-the-board shutdown, the EO allows certain exemptions, primarily focused on geopolitical and humanitarian priorities:
Exemptions include:
- Military aid to Israel and Egypt.
- Humanitarian assistance covering core lifesaving services like medicine, food, and shelter.
This means that while emergency humanitarian aid may still flow, programs aimed at long-term development, impact investment, and social enterprise support face uncertainty.
USAID’s Legacy: Six Decades of Global Impact
Established in 1961, the United States Agency for International Development (USAID) has been at the forefront of international development aid for over 60 years.
In 2023 alone, USAID managed a budget of over $40 billion, directing funding to critical areas such as healthcare, education, clean water, and climate resilience.
Beyond traditional aid, USAID has been a key player in impact investing, using blended finance models to de-risk investments in emerging markets.
By providing catalytic capital, USAID has encouraged private investors to fund sustainable businesses, making it a crucial bridge between philanthropy and commercial investment.
Indonesia has been a major beneficiary of USAID’s support. Over the years, USAID has funded numerous programs that have contributed to the country’s economic growth, environmental sustainability, and human development.
In the public health sector, USAID has improved access to clean water and sanitation through projects like the Indonesia Urban Water, Sanitation, and Hygiene (IUWASH) initiative, which has expanded water and sanitation infrastructure across 34 regions.
Beyond infrastructure, USAID has been instrumental in strengthening Indonesia’s healthcare system, providing crucial support for tuberculosis and HIV prevention, maternal health programs, and pandemic preparedness efforts.
Indonesia’s vulnerability to natural disasters has also made USAID a key partner in disaster response and humanitarian relief.
From the 2004 Aceh tsunami recovery to more recent earthquake and flood response efforts, USAID has provided not just emergency food assistance but also long-term reconstruction projects that help communities build resilience against future crises.
Here are some data’s we have collected on USAID’s funding efforts:
Datasource: foreignassistance.gov
Case Study: USAID’s Impact on Indonesia’s WASH Sector
Access to clean water and proper sanitation remains a critical challenge in Indonesia, particularly for urban populations in vulnerable areas. Over the years, USAID has played a pivotal role in strengthening Indonesia’s water, sanitation, and hygiene (WASH) sector, implementing programs that have transformed how communities access and manage essential services.
One of USAID’s most significant initiatives in this sector was the Indonesia Urban Resilient Water, Sanitation, and Hygiene (IUWASH) program, a five-year project aimed at expanding access to safe drinking water, sanitation, and hygiene services in urban communities.
This initiative not only improved infrastructure but also strengthened governance and service delivery systems to ensure long-term impact.
Building on this success, IUWASH PLUS was launched between 2017 and 2021 with a more targeted approach – focusing on providing safe drinking water and sanitation access to low-income and vulnerable urban populations.
Datasource: foreignassistance.gov
The latest iteration, IUWASH Tangguh, was expected to run until 2027 with a mission to ensure safe, equitable, and sustainable access to water and sanitation services across Indonesia.
This program also provided policy and governance support to both national and local governments, strengthening sanitation management systems. Covering nearly 34 districts and cities, IUWASH Tangguh had an extensive reach across North Sumatra, East Java, Central Java, West Java, South Sulawesi, and Papua, among other regions.
However, the recent U.S. executive order halting foreign aid spending has put programs like IUWASH Tangguh at risk. While certain humanitarian exemptions remain, the future of large-scale WASH projects in Indonesia is now uncertain.
This funding pause raises concerns about whether local governments and development agencies will be able to maintain and expand the progress achieved in providing safe drinking water and sanitation services to millions of Indonesians.
A Blow to the Impact Investing Ecosystem
Beyond traditional development aid, USAID’s shutdown also affects the impact investing landscape in Indonesia.
- Loss of Blended Finance Catalysts: USAID has been a key player in blended finance, providing risk-sharing mechanisms that encouraged private investors to fund high-impact projects.
- Widening SDG Financing Gap: In order to achieve the SDGs and implement climate actions, as well as to cushion and recover from the COVID-19 pandemic, financing will serve as a key driver of progress. Indonesia will need USD 400 – 750 billion to achieve the 2030 SDGs targets (BAPPENAS SDGs Roadmap, 2019) and USD 247 billion for implementing climate mitigation action until 2030 (Second Biennial Update Report, 2018). Furthermore, COVID-19 has exacerbated the SDGs financing gap, as the government needed to allocate $48 billion7 in 2021 for the National Economic Recovery program.
While USAID’s funding pause presents immediate risks, Indonesia has the opportunity to build a more self-reliant impact investment ecosystem. By leveraging public-private partnerships, mobilizing regional funds, and engaging domestic investors, Indonesia can develop sustainable financing mechanisms that reduce long-term dependency on foreign aid.
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