Indonesia: Precautionary Financing Facility

Sovereign Project | 46239-001

Summary

Like many other economies, the Indonesian economy has been affected by the deterioration in the global economic outlook and turbulence in the financial markets. Learning from lessons learned from the 1997/98 Asian Financial Crisis (AFC) and the 2008/09 global financial crisis, the Government has introduced a number measures to safeguard against any major trade and financial impacts emanating from the current global economic situation. The proposed $500 million INO-PFF (a countercyclical support facility with a precautionary financing option) will enhance the Government's preparedness to address the potential adverse impact of increased volatility in the financial market, given the government's increased dependence on the market to meet its budget financing needs.

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Project Name Precautionary Financing Facility
Project Number 46239-001
Country Indonesia
Project Status Approved
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 2871-INO: Precautionary Financing Facility
Ordinary capital resources US$ 500.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change
Sector / Subsector Public sector management - Economic affairs management
Gender Equity and Mainstreaming No gender elements
Description Like many other economies, the Indonesian economy has been affected by the deterioration in the global economic outlook and turbulence in the financial markets. Learning from lessons learned from the 1997/98 Asian Financial Crisis (AFC) and the 2008/09 global financial crisis, the Government has introduced a number measures to safeguard against any major trade and financial impacts emanating from the current global economic situation. The proposed $500 million INO-PFF (a countercyclical support facility with a precautionary financing option) will enhance the Government's preparedness to address the potential adverse impact of increased volatility in the financial market, given the government's increased dependence on the market to meet its budget financing needs. The Government has met the access criteria under ADB's guidelines for a countercyclical support facility: (i) continued good macroeconomic management; (ii) potentially significant economic impact (resulting, in this case, from a possible worsening in the eurozone crisis); and (iii) implementation of a countercyclical program in the revised 2012 budget.
Project Rationale and Linkage to Country/Regional Strategy The proposed INO-PFF will be part of a $5-5.5 billion contingent financing package provided by ADB, the World Bank, the Government of Japan, and the Government of Australia. The Government of Indonesia is committed to first meet its financing needs from market sources and will back up its intention with confidence-boosting policy measures. The Government of Indonesia will use the facility as an insurance device and fall-back option to be utilized only if market stabilization operation, utilization of alternatives debt financing sources, and utilization of accumulative surplus cash are unable to fulfill the financing need (Appendix 4). The Government believes that the announcement of this support package would send a strong positive signal to the markets, making it more likely that Indonesia would meet its financing needs in 2012 and 2013 from market sources.
Impact Sustained pro-poor economic growth
Project Outcome
Description of Outcome Government maintains priority spending and stimulates domestic demand
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Market confidence maintained

Government financing needs met in the event of larger financial market turbulence or crisis

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects N/A
Involuntary Resettlement N/A
Indigenous Peoples N/A
Stakeholder Communication, Participation, and Consultation
During Project Design On 20 February 2012, IRM received a formal letter from the Minister of Finance addressed to President Kuroda, asking for ADB to work with other development partners to develop what cooperation framework similar to what we provided in 2009. Before the formal request, an informal request was received by ADB and other development partners in December 2011 for a precautionary financing. Since then, IRM have engaged in productive discussions on nearly a weekly basis to look at the proposal. IRM has been very careful in managing expectations with the government and, in fact, throughout the process, IRM has discussed the pros and cons with the government and development partners. An important reason for the government is the lesson emanating not only from the 1997/98 crisis but also from the 2008/09 crisis. The request is put forward by the government based on advanced thinking on potential risks that are still there despite the country's current good economic performance. The facility should be seen as part of the country's economic risk management strategy given current uncertainties and its large financing needs from market sources.
During Project Implementation The Director General of Debt Management (DGDM) will be the executing agency to coordinate, monitor, and evaluate the implementation of the financing plan and the government's countercyclical fiscal stimulus programs supported by the loan. DGDM will convene a quarterly meeting attended by representatives from the government and development partners to oversee the implementation of the financing plan. The monitoring of the fiscal stimulus programs will utilize the government system. For example, for infrastructure spending, the government has also assigned the President's Delivery Unit for Development Monitoring and Oversight to monitor and coordinate its implementation. The government and development partners will meet each quarter to review (i) macroeconomic conditions, (ii) implementation of the financing plan, (iii) the government's countercyclical programs, and (iv) the government's financing shortfall. The coverage period for the facility is from 1 July 2012 to 31 December 2013. The loan of $500 million is to be disbursed when the government (i) has met the drawdown criteria set out in the government's financing plan; and (ii) maintain sound macroeconomic management. The proceeds of the loan will be disbursed in accordance with the provisions of ADB's Simplification of Disbursement Procedures and Related Requirements for Program Loans.
Business Opportunities
Consulting Services None
Procurement None
Responsible ADB Officer Edimon Ginting
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Indonesia Resident Mission
Executing Agencies
Directorate General of Debt ManagementMinistry of Finance
Jl. Lapangan Banteng Timur 2-4
P.O. Box 1139, 10710 Jakarta, Indonesia
Timetable
Concept Clearance 22 Jun 2012
Fact Finding 23 Jun 2012 to 08 Jul 2012
MRM 30 Apr 2012
Approval 18 Jun 2012
Last Review Mission -
Last PDS Update 08 Jun 2012

Loan 2871-INO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
18 Jun 2012 17 Jul 2012 18 Sep 2012 31 Dec 2013 30 Jun 2015 -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 500.00 Cumulative Contract Awards
ADB 500.00 18 Jun 2012 0.00 0.00 0%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 18 Jun 2012 0.00 0.00 0%

Safeguard Documents

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