Institutions have been one of the fundamental challenges in the study of public administration. Defined as the rules of the game that shape human interaction, institutions are viewed as critical factors in embedding the development process and ensuring the equal distribution of its outcomes and impacts. Employing the literature review method, this paper aims to explore the role of institutions in poverty alleviation in Indonesia. Several articles as well as cases in this particular topic will be analysed. Some institutional changes have been taken place in order to eradicating poverty effectively and efficciently. Some experts mention that good institutions are the key enabler of innovations, productivity growth as well as mutual learning. Institutions are also important in facilitating the norms and regulations in order to be well implemented through reward and punishment system. However, the progress of poverty reduction remains slow. Some cases indicate that the institutions fail in providing an efficient market especially for the poor. This failures, among others, are caused by corruption, political instability, government inefectiveness in the planning and implementation of the program, as well as misallocation strategic resources for the poor.