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MANILA, PHILIPPINES - ADB is providing Indonesia with a $200 million loan to improve the country's macroeconomic management which will focus on effective utilization of fiscal resources and sound public financial management, improve the investment climate, strengthen the financial sector, and reorient public expenditure to reduce poverty and unemployment.

The Development Policy Support Program includes a series of structural reform packages that underpin key priorities of Indonesia's medium-term growth and poverty reduction program.

It supports the Government's Medium Term Development Plan for 2004-2009, which has the broad goal of stimulating higher and sustainable economic growth to 7% annually by 2009 and halving poverty to 8.2% by 2009 from 16.6% in 2004.

To achieve these goals, the program involves a set of policy actions in four core areas to improve macroeconomic stability and creditworthiness, promote investments, strengthen the financial sector, and enhance the quality of public financial management and reduce corruption.

"The program is a key pillar of ADB's emerging country strategy and program for Indonesia for 2006-2010," says Shamshad Akhtar, Director General of ADB's Southeast Asia Department. "The Program is quite distinct and supports in a number of ways the Paris Harmonization agenda. The Program is driven by the Government, its process and commitment has been exemplary where the development partners have joined together to design, support and implement the Program in partnership. Finally, the Program is comprehensive and forward looking in nature and besides sustained macroeconomic stability, the program deepens reforms and strengthens public service delivery to the poor."

The Government's external financing needs for the 2005 budget are estimated at $3.6 billion, comprising $1.25 billion in program loans - to support the reforms - and $2.35 billion in project disbursements. In addition to ADB's loan, the Government has requested $400 million from the World Bank and parallel financing from Japan, with the amount yet to be determined. ADB's program is harmonizing its action closely with the policy reform support of these key development partners.

"The program recognizes Indonesia's positive track record of macroeconomic management, overall stability and fiscal consolidation since the 1997 Asian financial crisis," adds Ramesh Subramaniam, Principal Economist at ADB's Resident Mission in Indonesia.

"Moving forward, the Government is fully committed to further strengthening fiscal management, with the focus on tax reforms, debt sustainability and reorienting public expenditures towards reducing regional disparities and achieving the Millennium Development Goals."

The loan will be delivered in a single tranche from ADB's ordinary capital resources. It has a 15-year term, including a grace period of three years, with interest determined under ADB's LIBOR-based lending facility. The executing agency is the Ministry of Finance.

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