Washington DC, September 24, 2009 – The World Bank has today approved two development policy loans (DPLs) amounting to $1 billion as part of its continuing commitment to support Indonesia’s broad-ranging reform program. The loans finance Government investments through the state budget, in recognition and support of Indonesia's continuing reform efforts to improve its investment climate, strengthen public financial management and governance, improve delivery of public services to the poor and address the obstacles to investment in new and better infrastructure.
The Sixth Development Policy Loan – which is part of an annual series of DPLs that started in 2004 – sees Indonesia on a much stronger macroeconomic footing, as robust domestic consumption and improved trade performance in the first half of 2009 has allowed Indonesia to recover from the global financial crisis quicker than the rest of the world. This $750 million investment is helping Indonesia to: (i) reduce the time it takes to import and export goods, (ii) reform its tax administration system, and (iii) improve budget and cash management within the central government.
“In the midst of a global financial crisis and this year’s legislative and presidential elections, Indonesia has continued to implement sound economic policies and important policy reforms,” said World Bank Country Director for Indonesia, Joachim von Amsberg. “The country has taken significant steps forward and continued steady reforms in improving public financial management and service delivery, and has also taken effective and timely actions in response to the global crisis. With a new government soon to take office, Indonesia has a unique opportunity to build on its current robust foundation and accelerate inclusive and sustainable growth.”
Through the Third Infrastructure Development Policy Loan (IDPL3) for $ 250 million, also approved today, the World Bank is supporting Indonesia’s effort to increase the level and effectiveness of infrastructure financing, which dropped significantly after the 1997 Asian financial crisis and is now the main constraint to Indonesia’s growth potential. World Bank studies show infrastructure investments of $ 4.7 billion could boost the GDP by 2.4 %.
“Despite past frustrations, Indonesia’s commitment to infrastructure reforms and improved infrastructure services continues. This year, Indonesia has managed to increase sub-national government spending on piped water services, implement new land acquisition processes and earmarked significant portions of funding for infrastructure from the fiscal stimulus package,” said Mr. von Amsberg. “Nevertheless, a lot more remains to be done to meet the growing demands of infrastructure users, as well as to address the needs of the large parts of the population who do not have access to basic infrastructure.”
The IDPL3 is supporting a Government reform program in infrastructure, which by the end of 2010 is expected to help:
• increase capital spending by infrastructure ministries by 25 percent
• increase the proportion of electricity subsidies allocated to the lowest income consumers
• prepare competitive and transparent tenders for public-private partnership transactions, and
• result in $300 million worth of new water utility investments, and
• speed up the processing of construction contracts