Indonesia‘s ADB loan programme phase 2 begins

Indonesia has embarked on its second phase of reforms through the ADB’s assistance programme and further lending worth $600m.

The push from the Asian Development Bank (ADB) regarding Indonesia’s structural and financial reforms has continued with a $400 million loan and $200 million in co-financing from public German bank KfW Bankengruppe. The aim is to attract greater foreign and domestic investment.

The first phase of the Stepping Up Investments for Growth Acceleration Program (SUIGAP) started in January last year. It supports government policies to create a more open and cost-effective business environment. The expansion of infrastructure financing options and the development of a faster, more transparent public procurement process mean the programme is beginning to come to fruition. The second phase will commence next month.

“Indonesia needs to speed up structural reforms to transform from a commodity driven economy to one that is more broad based,” said Rabin Hattari, an ADB public management economist. “For this to happen, investments are needed across various sectors. These require an improved investment climate, better infrastructure, and stronger governance, which in turn helps generate more productive jobs and contribute to poverty reduction.”

Bankability and the proper preparation of public-private partnership (PPP) projects will be a core focus. The programme will aim to help the government set up a high-level government committee in charge of priority infrastructure project delivery, and will anchor a PPP office at the Ministry of Finance.

Specific measures include raising the limit of foreign ownership in a PPP connectivity project: “On April 24, 2014, the Government revised the negative investment list. One of the key reforms now is to raise foreign ownership on provision of ports from 49% to 95%, should it be done under a PPP during the concession period,” said Hattari.

The programme will strengthen systems and capacity for fast land acquisition in the public interest, and will simplify procedures to accelerate the launch of businesses.

The development of PPPs, which was restricted to prioritised sectors of ‘hard’ infrastructure, will extend to social infrastructure to allow for more inclusive growth, with a particular focus on remedying supply-side defaults in health and education.

The programme also backs initiatives to expand infrastructure financing options for local governments. In line with this objective, it will “aim to introduce new public sector modalities of infrastructure finance, such as municipal bond and project based sukuk,” said Hattari.

The plans encompass the development of an integrated law on private participation in infrastructure.