Regions and Countries

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p. 17 of 33 BACK | NEXT I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB's Development Experience A. Impact of Past Assistance B. Portfolio Performance and Status C. Lessons Learned D. Conclusions and Lessons for the Country Strategy and Program IV. ADB's Strategy V. ADB's Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program 2006-2009 (Draft for Consultation): Indonesia : III. ADB's Development Experience

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A. Impact of Past Assistance

52. From a historical perspective, ADB’s operations in Indonesia have mirrored the economic performance of the country, which to date, has remained one of the largest recipients of ADB’s lending and technical assistance. From about a total $5 billion in the 1980s, lending to Indonesia rose to $11 billion in the 1990s, the high-growth period that was punctuated by the rise and subsequent fall of the emerging economies of Southeast Asia as they were hit hard by the Asian financial crisis. Following the financial rescue operations in response to the crisis, lending to Indonesia dropped gradually after 1998. Between 1998 and 2005, lending operations were characterized by the increased use of program loans to advance policy reforms, the design of more decentralized projects and the provision of limited access to ADF to support human development projects, including capacity development. There was a marked turnaround in ADB operations in 2005 when total lending reached $798 million, from a low of $225 million in 2004. During 1998-2005 43 loans were approved with total lending of $6,207 million, of which $606 million came from ADF; 11 or 26% were program loans totaling $3.73 billion, and 32 were project loans, amounting to $2.48 billion for 27 projects. The majority of lending was in support of Law, Economic Management and Public Policy (Table 1).

53. Indonesia has also been one of the largest beneficiaries of technical assistance (TA). Between 1990 and 2005, ADB approved $127 million for 122 advisory TAs and $76 million for 135 PPTAs. Following the financial crisis, there has been a more focused approach towards using TA operations to support the Government’s reform agenda and capacity development. Several advisory TAs have been provided to promote capacity development in key areas of governance, public financial management, infrastructure development, and decentralization. Several TA projects financed by Japan Fund for Poverty Reduction have also been provided, including five to support tsunami related emergency operations.

54. ADB’s private sector operations in Indonesia began in 1985 through a $1 million line of credit to the Development Bank of Indonesia and an investment loan of $0.4 million. Since then, ADB had one of its largest private sector portfolios in Indonesia, with total approvals of $169 million, until the onset of the financial crisis led to a lull in ADB’s private sector operations in Indonesia. At the end of 2004, outstanding principal in the private sector portfolio amounted to $17.4 million.²⁷ However, in response to Indonesia’s recent macroeconomic performance and commitment to ongoing policy reforms, ADB has started to explore avenues to revive and expand its private sector operations in Indonesia. With the Indonesian economy poised to grow at 6-7% and the estimated infrastructure investment requirements of $65 billion over 2006-2009, the prospects for increased private sector participation seem promising, particularly in infrastructure development. In December 2005, a $350 million loan was approved, the largest private sector loan to date by ADB, to help develop the Tangguh LNG field in Irian Jaya Barat.²⁸ In August 2006, one further operation was approved, for a gas pipeline.²⁹ Greater collaboration between SERD and PSOD and the use of IEI financing instruments are expected to facilitate increased private sector operations in Indonesia.

55. Recently, emergency operations have increased in Indonesia, which is prone to natural disasters. Following the tsunami and earthquake disasters that hit Aceh and Nias in late 2004, ADB approved $300 million grant assistance for rehabilitation and reconstruction.³⁰ Following the earthquake in Yogyakarta and Central Java (YCJ) and in May 2006, ADB has offered $10 million in grant assistance for the reconstruction effort.³¹ Given Government preference for grant funding for responding to natural disasters, utilization of loan funds reprogrammed for Aceh and Nias has been slow.

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