JAKARTA (rambuenergy.com) – The Indonesian government has secured funding commitment from the Asian Development Bank (ADB) worth US$10 billion to support the government’s priority development programs, in particular physical and social infrastructure.
The ADB made the announcement in conjunction with the visit of the President of the Asian Development Bank (ADB), Takehiko Nakao, on Friday (Feb. 2) to Indonesia. Takehiko Nakao met with Joko Widodo, President of Indonesia, and discussed areas of future cooperation. At the meeting, Nakao announced that ADB will boost lending to the country from $740 million annually from 2010 to 2014, to as much as $2 billion a year, or $10 billion over the next 5 years, using its expanded lending capacity.
The ADB President Nakao has also met with Vice-President Jusuf Kalla, Minister of Finance Bambang P.S. Brodjonegoro, and Minister of National Development Planning Sofyan Djalil. Nakao is scheduled to meet Coordinating Minister of Economic Affairs Darmin Nasution later today.
During discussions with the government, Nakao said the increased ADB funding for Indonesia will support the government’s development priorities, particularly physical and social infrastructure. In addition to project loans, ADB is actively using policy-based loans and results-based loans. Results-based loans link disbursements to the achievement of results instead of financing project-specific inputs.
Last year, ADB provided a total of $1.67 billion in loans to the country, which included a $400 million policy-based loan to promote financial market development and financial inclusion, another $400 million policy-based loan to develop the energy sector, and its first results-based loan of $600 million to support upgrading Sumatra’s power transmission and distribution networks. ADB support for this year will include loans in education services, public finance management, clean energy, rural infrastructure and flood control.
Nakao commended the government’s economic management last year. Inflation was low at 4% in December 2015, the fiscal deficit was contained to 2.7% of gross domestic product (GDP), and the current account deficit declined to 2.5% of GDP from 3% in 2014. ADB forecasts Indonesia’s economic growth to rise to 5.3% in 2016 from 4.8% in 2015.
“Wide-ranging economic reforms have bolstered market confidence despite global financial volatility and falling commodity prices”, said Nakao. “It is critical for Indonesia to continue and strengthen the momentum of reforms to help diversify the economy and enable all Indonesians to benefit from the country’s growth potential”.
He reemphasized the importance of continuing efforts to boost domestic tax revenue through widening of the tax base and strengthening tax administration.
Nakao congratulated the government for announcing a major revision of the nation’s negative investment list on Thursday. The revisions will open 35 previously closed sectors to foreign investment and allow greater foreign ownership in many more sectors. Other important reforms so far include reduction of fuel subsidies that created fiscal space for other priorities, increased expenditure on infrastructure and social services, accelerated implementation of projects, measures to liberalize trade and foreign direct investment, faster business licensing, expanded special economic zones, and the creation of tourism development zones throughout the country.
Nakao welcomed the government’s new initiatives to ease the financing of infrastructure, including capital injections by the government into state-owned enterprises (SOEs) and government guarantees for direct lending by international financial institutions to SOEs. SOEs will play a crucial role in delivering the rural infrastructure needed to boost rural incomes and enhance food security, and in the program to build 35 gigawatts of power stations to reduce electricity outages.
Indonesia has made tremendous social, economic and political progress in recent years. Nevertheless, around 28 million or 11% of the population live below the poverty line, and 60% of the labor force works in the informal sector where incomes are not secure.
Nakao said that ADB is helping Indonesia to improve the quality and accessibility of education, which will be essential to boost productivity and combat rising inequality. Through policy-based loans, ADB is focusing on lowering the cost of doing business, which is key to creating better jobs.
The government wants ADB to be an important partner in formulating Indonesia’s new long-term development strategy “Roadmap 2045”. ADB is already supporting this exercise through technical assistance in the infrastructure and social sectors.
Nakao emphasized that “while the market should play an important role for development, good development strategy and planning is indispensable”. ADB is also assisting the government to meet its COP21 commitments by promoting renewable energy, energy efficiency and sustainable agriculture.
Since joining ADB as a founding member in 1966, Indonesia has received $32 billion in sovereign and non-sovereign loans, $437 million in technical assistance, and $430 million in grants. ADB support has focused on natural resource management, education, energy, finance, transport, as well as water supply and other municipal services.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members, 48 of them are from the region. (*)