Papua New Guinea, explained.
Neighbours: Indonesian President Prabowo Subianto and PNG Prime Minister James Marape (Andrew Kutan/AFP via Getty Images)
The next stage of growth can benefit from the lessons Indonesia had to learn through mistakes.
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PNG wants a bigger economy – Indonesia shows howPNG wants a bigger economy – Indonesia shows how
Australia has enduring ties with Papua New Guinea as its largest development partner (Opens in new window), a major source of investment and skills, and now a formal security ally. This relationship will remain central to PNG’s future.
Yet if PNG is to accelerate its ambition (Opens in new window) of building a PGK 200 billion / AU$64 billion economy, creating one million jobs and improving the quality of life of its citizens, it needs to look to the broader neighbourhood as well.
PNG has spent much of its history looking south. But its geography makes its northern horizon matter economically. Indonesia is the obvious place to start, offering something Australia cannot: a peer development journey. It is PNG’s closest large neighbour and part of the same regional economy. Beyond it lie some of the world’s fastest-growing markets, manufacturing capabilities, digital technologies and supply chains.
Indonesia can show PNG what is feasible. Australia can help make it durable.
There is also a deeper foundation. Connections between PNG, Indonesia and northern Australia predate modern borders. Torres Strait communities have long maintained kinship, cultural and trading ties across the Australia–PNG border, while Yolŋu communities have longstanding links with Makassan and Bugis traders. PNG and Indonesia share an 820-kilometre border and close community ties. The relationship can build on this older regional fabric of Indigenous knowledge and community networks –connections increasingly recognised in contemporary regional diplomacy, including through Australia’s First Nations International Engagement Strategy (Opens in new window).
Indonesia has confronted many of the problems PNG now faces – difficult and dispersed geography, extraordinary rural and cultural diversity, uneven infrastructure, limited state capacity, resource dependence and the challenge of turning economic growth into better services beyond major cities. Indonesia has also made plenty of mistakes. That is precisely why it can hold useful lessons. Indonesia also can be a strong supporter of PNG’s ambitions, including its path towards ASEAN membership (Opens in new window).
The World Bank argues PNG’s ambitions will depend on capturing more value from its resources (Opens in new window) while improving public spending and investment in education, health and social protection. Underinvestment in these areas is holding back productivity, job creation and long-term growth. The Bank also identifies Australia, Indonesia, Malaysia and Peru as PNG’s “aspirational peers” – countries that offer lessons as PNG considers its own development path.
Indonesia offers practical lessons in these areas.
Schools and share lessons (Esteban Barrera/Global Partnership for Education)
In education, Indonesia’s school operational grants (Opens in new window) provide an example of getting resources directly to schools while ensuring transparent reporting and national standards. Its conditional cash transfer program (Opens in new window) also shows how financial support can help keep children in school and improve access to basic services. The lesson is to bring funding, accountability and incentives closer to families, schools and teachers.
In health, Indonesia’s Puskesmas – community health centres (Opens in new window) that form the backbone of primary care – offer a useful reference for a geographically dispersed country. They show how a network of frontline institutions, with clear responsibilities and predictable funding, can provide a consistent foundation for primary care.
Social protection (Opens in new window) may offer an opportunity to leapfrog. PNG is on the path to building a comprehensive and sustainable social protection system (Opens in new window). Indonesia’s experience shows the value of unified targeting and integrated programs. Starting late can be an advantage: PNG can build a unified social registry and modernise disbursement and payment systems, including through digital methods, rather than inherit decades of fragmented systems.
Other lessons could support PNG’s broader development agenda.
PNG’s largely subsistence agriculture is constrained by poor market access and limited extension services. Indonesia’s agricultural transformation (Opens in new window) shows the value of bringing extension officers closer to farmers, alongside cooperative credit, subsidised fertiliser, irrigation and reliable price incentives. Its Village Fund (Opens in new window) also channels resources directly to villages for local infrastructure, showing how local decision-making can improve delivery where centralised systems struggle, provided there is strong accountability.
Digital connectivity offers another lesson. Indonesia’s Palapa Ring (Opens in new window) ICT backbone connects underserved areas through a public-private partnership supported by the Universal Service Obligation fund. Its fast-growing digital economy (Opens in new window) has created opportunities for micro and small businesses through locally tailored platforms (Opens in new window) and digital financial services. For PNG, the lesson is to build digital services around local markets and users, including local-language platforms, while strengthening digital literacy and data security.
The same principle applies to PNG’s downstreaming agenda (Opens in new window). Extracting natural resources is not the same as building a broad-based economy. Indonesia’s nickel downstreaming (Opens in new window) experience shows both the potential to attract smelting investment and the risks that come with intervention. For PNG, successful downstreaming (Opens in new window) will require finance, reliable infrastructure, strong institutions, rigorous market analysis and credible environmental and social standards.
There is already a precedent for the three countries working together. In December 2025, PNG, Indonesia and Australia held their first trilateral Defence Ministers’ Meeting (Opens in new window) in Port Moresby and agreed to meet annually, including on maritime awareness, humanitarian assistance and disaster response. If they can build practical cooperation on security, they can explore the same approach to development.
The timing is good. PNG and Indonesia are due to hold their Joint Ministerial Commission in Jakarta in September 2026 (Opens in new window). Australia should be kept informed to help identify opportunities for follow-up and trilateral cooperation. The meeting could explore development partnerships, with Indonesia providing lessons and other practical support, Australia providing finance and capability, and PNG adapting them to its needs.
PNG should make both relationships work for its development. Look south for capital, capability and security; look north for markets, technology and development lessons; and look inward to the people and institutions that will determine whether any strategy succeeds. Indonesia can show PNG what is feasible. Australia can help make it durable. PNG should use both.
About the authors
Serena Sasingian
Serena Sasingian is the FDC Pacific Research Fellow at the Lowy Institute, with more than 15 years of experience in development and public policy across government, private, and non-profit sectors.
Hilman Palaon
Dr Hilman Palaon is a Research Fellow at the Lowy Institute’s Indo-Pacific Development Centre. His work focuses on digital economy issues in the Indo-Pacific region, including financial inclusion, economic empowerment, and technology innovation.
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