World Bank supports Indonesian campaign to attract greater investments in infrastructure through design of innovative guarantee and financing facilities
Jakarta, April 12, 2010 – World Bank Managing Director Juan Jose Daboub says middle income Indonesia is well positioned to achieve rapid growth through greater and more strategic investments in infrastructure. This statement was made during Mr. Daboub’s one-day visit to the Indonesian capital, ahead of the Asia-Pacific Ministerial Conference on Public-Private Partnerships for Infrastructure to be held in Jakarta on April 14-17, 2010.
According to the World Bank’s latest Indonesia Economic Quarterly update, $ 6.6 billion of foreign capital has flowed in since June 2009. This shows that Indonesia is poised for government-catalyzed and private sector-driven investment that can be further raised with the right policy improvements for the investment climate.
“Indonesia has weathered the global financial crisis very well. Now, infrastructure is the key constraint to rapid growth and improved investments for many middle income countries. It is important for Indonesia to meet the challenges, including lining up a pipeline of bankable public-private partnership projects and being able to demonstrate a record of improving governance and effective control of corruption,” said Daboub.
To support the Indonesian Government’s effort to raise infrastructure investment, the World Bank has advised on the design and structure of a Ministry of Finance initiative - - the Infrastructure Guarantee Fund. As an independent public entity, the Fund will provide guarantees to mobilize local and international private financing for well-structured public-private partnership projects. The Fund will also serve as the single-window for appraising all PPPs requesting government guarantees, help improve the quality of PPPs and protect government from any liability. Under the Infrastructure Guarantee Fund, the World Bank has indicated it might provide partial risk guarantees of up to $500 million to help cover about $2 billion of PPP project debt incurred though Government of Indonesia actions.
Another mechanism to support infrastructure investment is a private sector non-bank financial institution called PT. Indonesia Infrastructure Finance, to which the World Bank and Asia Development Bank has provided support with a loan of $100 million each. Established in January 2010, PT.IIF will facilitate long-term financing for commercially-viable infrastructure projects in Indonesia either by:
- providing a layer of credit enhancement to banks, non-bank financial institutions and capital markets that directly finance projects, or
- bringing in other financial institutions as investors and, in turn, provide financing directly to infrastructure projects in the form of long-term loans and guarantees.
“We believe that these innovative financing platforms established by the Indonesian Government will encourage significant investment to improve infrastructure across the country,” said Daboub. “We are willing to support these efforts and help mobilize the necessary resources to further develop Indonesian infrastructure.”
During his visit, Mr Daboub had a meeting with Finance Minister Sri Mulyani Indrawati in which he was pleased to see the determination to maintain macrostability, while investing in the poor, which can continue Indonesia's progress forward. "I see a coherent, high quality economics team, working hand-in-hand on social sectors and in positioning Indonesia as a pole of growth in the East Asia and Pacific region,” said Daboub. While in Jakarta, Mr. Daboub also met with the National Development Planning (BAPPENAS) Minister Armida Alisjahbana, other public and private sector leaders, as well as civil society representatives. Prior to visiting Indonesia, Mr. Daboub was in Vietnam to attend the 14th ASEAN Finance Ministers Meeting in Nha Trang.