Regions and Countries

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p. 27 of 33 BACK | NEXT I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB's Development Experience IV. ADB's Strategy V. ADB's Assistance Program A. Overall Assistance Level B. ADB Assistance for the Strategic Priorities C. External Funding Coordination and Partnership Arrangements D. Indicative Internal Resource Requirements VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program 2006-2009 (Draft for Consultation): Indonesia : V. ADB's Assistance Program

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V. ADB's Assistance Program

94. Indonesia, a Group B country, is eligible for a blend of OCR and ADF lending. Since 2000, OCR lending to Indonesia has fluctuated between $200 million and $700 million.⁴² Over the same period, lending for projects (ADF and OCR) fluctuated strongly between $25 million and $600 million (average $258 million), while program lending ranged from $200 million to $500 million (average $300 million), with one exceptional year without any program lending (2003). Program lending as percentage of total lending was 46%. Over the CSP period 2006- 2009, OCR public sector lending levels are expected to gradually increase from $550 million in 2006 to $1 billion in 2009, with fairly consistent levels of program lending, and increasing project lending. Actual levels of OCR lending will be determined by Government needs, the availability of well-designed projects including private sector and nonsovereign operations, and the willingness to borrow in the context of the Government’s borrowing strategy.

95. ADB will explore the range of new products and modalities currently available. Nonsovereign lending is expected to gain importance over the CSP period, but time will be needed to address specific issues surrounding this modality. For example, current legislation does not allow local governments to directly borrow from international financial institutions. There are opportunities for non-sovereign lending to SOEs, but risk-sharing arrangements need to be sorted out for each case. The Government is interested in the Multi-tranche Financing Facility MFF, as it would lessen the burden of annual borrowing commitments, and make it easier for projects to meet the project readiness criteria. There are good opportunities for local currency lending, and several SOEs and private sector enterprises have expressed interest in this modality. ADB is currently working with the Government to prepare for ADB’s first local bond offering. ADB will continue to step up its private sector investments, loans, and guarantee products.

96. The allocation of ADF to Indonesia has been fixed at $200 million per 2-year period (2005/2006, and 2007/2008). As in the past, ADF will be primarily used for direct poverty-related interventions and capacity development.

97. ADB will sharpen the focus of its TA program in line with CSP priorities, and remain at around $12-15 million per year, but with fewer number of operations. The ADTA program will focus on providing policy dialogue and technical assistance support for the strategic areas of engagement, in the form of larger cluster TAs. As in the past, ADB will remain proactive in securing cofinancing from bilateral partners for its TA operations

98. Cost Sharing Arrangements. Until the introduction of the new cost-sharing policy,⁴³ ADB’s cost sharing limit was set at 70 percent for both ADF and OCR loans for Indonesia as a Group B2 country. The TA cost-sharing limit was set at 80 percent. For this CSP, the costsharing limit will remain at 70 percent for loans and at 80 percent for TAs. It was agreed that for individual projects, the percentage would be lowered for projects with a cost-recovery character, where private sector participation is available or where the Government gets a financial return, to allow for a higher financing percentage in the social sectors or for projects with a strong poverty reduction focus. The implementation of the cost-sharing arrangement will be monitored through the annual portfolio review process. Under the policy, loan proceeds may now also be used for the financing of taxes and duties, land and right-of-way acquisition, recurrent expenditures, secondhand goods, leased assets, severance pay, and some others including local transport and insurance, resettlement expenses, and bank charges. The Government considers that these items need to be financed from the budget, and that borrowing foreign currency for these purposes would not be justified under current Government policies. Should the need arise in the future, a special case will be made.

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