Indonesia to launch infrastructure finance firm

Reuters, Wed Jan 27, 2010 12:27pm GMT

JAKARTA, Jan 27 (Reuters) - Indonesia will launch a new private infrastructure financing company within the next two months to speed development of sorely needed infrastructure, but with initial capital of just $170 million.

Poor roads, energy and transport infrastructure have limited growth and investment in Southeast Asia's largest economy, but many vital infrastructure project proposals have stalled due to a lack of funding.

The government said on Wednesday it would launch in March PT Indonesia Infrastructure Finance, to provide funding, equity participation or financing guarantees for private infrastructure projects.

"We have already signed an agreement with some donors to help with initial capital," the new firm's interim director, Emil Dardak, told reporters.

"We are aiming for some long term infrastructure projects including power, toll roads, water, seaport and airport projects and they must be commercially viable," Dardak said, adding the agency is yet to consider any infrastructure project proposals.

It has initial capital of 1.6 trillion rupiah ($170.3 million) from shareholders including state infrastructure financing agency PT Sarana Multi Infrastruktur, the World Bank's International Finance Corporation and the Asian Development Bank (ADB).

Dardak also said the agency has secured the equivalent of 2 trillion rupiah convertible subordinated loans from the World Bank and Asian Development Bank (ADB), maturing in 20-25 years to help the agency's financing business.

"Later on they will need to raise much more funds, by issuing some bonds for example," said Anton Gunawan, chief economist at Bank Danamon in Jakarta. "It's not enough on its own to develop infrastructure, the need is very big."

A need for infrastructure development is one of the reforms seen by analysts as needed to help Indonesia achieve an investment grade sovereign rating, a prospect drawing investors into the country's bond and currency markets.

President Susilo Bambang Yudhyono last year promised to spend $140 billion over five years on infrastructure as part of an effort to boost Indonesia's economic growth to 7 percent or more by 2014, up from an expected 5.5 percent in 2010.

The government has said it will offer new incentives for infrastructure investors and has also launched a $1 billion fund for investment in environmentally friendly infrastructure.

An Association of South East Asian Nations (ASEAN) fund to support infrastructure projects in the region is also expected to be set up this year with initial capital of $1 billion, with contributions from Japan, China, South Korea and the ADB.

(Reporting by Dicky Kristanto and Sunanda Creagh; Editing by Neil Chatterjee)