ADB Pledges $800 million for Indonesia Assistance

JAKARTA, INDONESIA (21 January 2005) - ADB yesterday pledged new commitments for Indonesia in 2005 of up to $800 million for projects in a range of sectors to support ongoing economic development and poverty reduction efforts.

Disbursements under these commitments will be additional to the significant special financial and operational support that ADB will be providing for rehabilitation and reconstruction work in the tsunami-affected areas of the country.

ADB's new commitment will support operations focused on infrastructure, local government finance, water resources, agriculture productivity, education, and nutrition, ADB Vice-President Joseph Eichenberger said at the 14th Consultative Group on Indonesia (CGI) meeting in Jakarta.

"Indonesia's macroeconomic circumstances have improved in some important ways and the foundation for further progress is stronger than it has been in some time," Mr. Eichenberger said. "We see this reflected in last year's growth performance, in key fiscal and debt indicators, in sharply lower vulnerability on the external front, and in the economy's perhaps unexpected robustness in the face of multiple external shocks."

The Government, however, continues to face several significant structural challenges, the resolution of which remains crucial to Indonesia's growth and development, and to meeting the legitimate aspirations of its people in the medium to longer term.

The first pressing challenge is the need to meet Indonesia's massive investment needs. This is a multi-year proposition that will require the active engagement of both the public and private sectors, and both foreign and-especially-domestic resources.

"Greater predictability and clarity about different administrative responsibilities and consistency in implementation of the legal and regulatory framework will surely trigger the private investment that is the essential engine of sustained and equitable growth in Indonesia," Mr. Eichenberger said.

"The powerful signals of change that have been delivered at the highest level give us a higher degree of confidence than we have had in some time," he said.

ADB expects to disburse about $650 million in 2005 for ongoing loans supporting its regular development work in Indonesia.

In addition to its CGI commitments, ADB will be providing significant financial and technical support for rehabilitation and reconstruction in areas devastated by the 26 December tsunami, Mr. Eichenberger said.

"One of the enduring and universal human mysteries is that out of profound tragedy can spring great hope," he said. "I believe that is what we are seeing in the wake of the tsunami disaster. Without in any way diminishing the gravity of Indonesia's losses, we can also look with a new sense of confidence to a future of greater hope and renewed promise."

ADB has allocated an initial $675 million for the rehabilitation and reconstruction effort in Indonesia, Maldives, and Sri Lanka. This includes $500 million in new grants and highly concessional funds, and $175 million redirected from ongoing projects and programs.

In support of priority rehabilitation and reconstruction needs in Aceh and North Sumatra in 2005, ADB expects to disburse $136 million. Therefore, total anticipated on-budget disbursements for 2005 would be $786 million.

"These reprogrammed funds will allow us to provide rapid assistance to meet urgent needs in Aceh in areas including the provision of clean water and sanitation, help in rebuilding schools and health facilities," said Shamshad Akhtar, Director General of ADB's Southeast Asia Department. "As rehabilitation and reconstruction work gets started, we must help these people rebuild their lives and livelihoods," she said.

ADB estimates the tsunami disaster could push up to 1 million Indonesians into poverty, and another million in other affected countries.

The new CGI commitment of $800 million will support ADB's broad program of assistance to Indonesia. This program is focused on the main medium-term needs of the economy, namely:

• Improving governance and fighting corruption;
• Meeting local needs through decentralization;
• Promoting human development;
• Improving environmental management and sustainable use of resources; and
• Increasing long-term growth prospects and economic potential.

ADB is proposing eight new projects for 2005 for $777 million. This will be supported by technical assistance grants of $12 million-$14 million. All ADB work in Indonesia is designed in cooperation with the Government to meet its key development priorities.

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