ADB Releases More Funds for Indonesia's Infrastructure Sector Reform

Asian Development Bank

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is providing an additional $280 million loan to support ongoing critical reforms in Indonesia's infrastructure sector to further fuel economic growth and narrow the disparity gap. 

The loan will fund the second of three subprograms of the Infrastructure Reform Sector Development Program approved in 2006. The assistance will come from ADB’s ordinary capital resources and will carry a 15-year repayment term, including a grace period of three years. 

The program seeks to encourage private sector participation to speed up infrastructure development and help improve the overall investment climate by removing infrastructure bottlenecks and increasing access to infrastructure services. 

It will also help Indonesia improve policies, laws, and institutions needed to attract large-scale private sector infrastructure investments, as well as streamline responsibilities in national and local government agencies. 

“Domestic demand, coupled with private investment, has been a key driver of the recent economic growth. The country’s progress is made more significant given the natural disasters it had to face, including the 2004 tsunami,” said Rehan Kausar, Infrastructure Specialist of ADB’s Southeast Asia Department. 

However, much still needs to be done in the area of infrastructure development. The Government of Indonesia has estimated that about $65 billion would be needed in new infrastructure investments from 2005 to 2009, with $25 billion to be sourced from its budget, $14 billion from domestic banks, insurance funds, and pension funds, $10 billion from multilateral and bilateral development partners, and $16 billion from the private sector. 

“Given the weak investment climate, the government recognizes that private sector participation could not be taken for granted, and that major structural and institutional reforms are needed,” Mr. Kausar added. 

The impact of the first ADB-backed program has been positive, with the annual infrastructure investments rising to 3.3% of GDP in 2006 from 2.9% in 2005. 

The Subprogram 1 was financed by a $400 million ADB loan and a co-financing of $100 million from the Government of Japan. The second and third subprograms are expected to receive similar co-financing arrangements. 

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