The Asian Development Bank (ADB) has approved the release of a $500 million loan to Indonesia following the roll out of agreed policy reforms to reduce barriers to investment and encourage more public-private partnerships (PPPs), which are needed to foster the development of the private sector and increase its participation in infrastructure projects.
The loan, which is ADB’s second under the Stepping up Investments for Growth Acceleration Program, will be complemented by cofinancing of $224.6 million equivalent from Germany’s KfW Bankengruppe. KfW provided parallel financing of $245 million for the first stage of the program.
“Indonesia has been taking significant steps to improve the investment environment including removing barriers to PPPs and stripping away regulatory red tape,” said Steven Tabor, Country Director at ADB’s Indonesia Resident Mission. “The 12 economic reform packages issued since September 2015 underscore the government’s desire to dramatically improve the investment climate.”
Cumbersome regulations and high costs of setting up and doing business have hindered new investment, with Indonesia ranking 109th out of 189 countries in a 2016 World Bank report for ease of doing business, well below regional neighbors.
“Indonesia needs to create new engines of growth to return to a path of higher and more inclusive growth,” said Rabin Hattari, Public Management Economist at ADB’s Southeast Asia Department. “Private investment will be critical to fostering a more diverse and resilient economy.”
The first phase of the government’s reform program saw the setting of higher foreign equity ceilings in land transport, shipping and management of ports, the establishment of a dedicated office to formulate land acquisition policy, and the development of a framework for e-procurement.
The second phase of reforms has taken further steps to ease restrictions on investment, streamline processes for starting and operating a business, and widen the remit for PPPs.
The third phase of the program to be carried out from July 2016 to June 2018 will see further measures to expand evidence-based reforms, improve ease-of-doing business, strengthen PPPs, and enhance the government’s e-procurement system.
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, ADB in December 2016 will mark 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2015, ADB assistance totaled $27.2 billion, including cofinancing of $10.7 billion.
