Indonesia and ADB

ADB's Work in Indonesia

Indonesia was a founding member of ADB in 1966. Today, the country is ADB’s sixth largest shareholder and one of its largest sovereign borrowers.

Indonesia has made remarkable progress in its social and economic development in the past few decades. Since the 1998 Asian financial crisis, its economy has grown tenfold and per capita income has risen eightfold. The country reached middle-income status in 2004 and became a Group of Twenty (G20) member in 2008. Poverty levels fell to single digits for the first time in 2018.

Downtown Jakarta, Indonesia.

Despite this progress, fostering inclusive and sustainable economic growth remains a challenge in Indonesia. Poverty is still significant, inequality and regional income disparities are relatively high, and quality jobs are scarce. To address these challenges, the Government of Indonesia’s medium-term development priorities include building economic resilience to achieve quality and equitable economic growth; promoting economic infrastructure and basic services; developing quality and competitive human capital; addressing environment and climate change; and supporting regional development.

Since 1966, ADB has committed sovereign and nonsovereign loans, grants and technical assistance totaling $39.18 billion.

Indonesia has 40% of the world's geothermal resources. Developing it will help meet its target of reducing 30% CO2 emissions by 2030.

In October 2019, ADB committed $500 million for policy reforms to improve the quality of government spending on health, education, social protection, and infrastructure in Indonesia.

In December, the bank committed $90 million in additional financing to the State Accountability Revitalization Project, which is helping improve governmental accountability for public expenditure. ADB also committed $100 million to help mobilize private sector investment in infrastructure, close the infrastructure financing gap, raise the quality and standards of infrastructure projects, and alleviate competing demands on fiscal resources.

ADB also provides strategic knowledge support to advance the government’s development priorities. In 2019, this included assessing the impacts of contemporary issues such as the advancement of technology and automation, climate change, urbanization, and aging; identifying the policy reforms needed to boost the competitiveness of Indonesia’s manufacturing sector; and conducting sector diagnostics in core areas of ADB operations in the country.

Electronics engineering students of Batam State Polytechnic design their own printed circuit boards at one of the campus' numerous electronics labs

Nonsovereign Operations

As a catalyst for private investments, ADB provides financial assistance to nonsovereign projects and financial intermediaries. Total commitments from ADB’s own funds (in equity and direct loans) in 2019 amounted to $3.00 billion for 38 transactions in economic and social infrastructure, the finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2019, ADB mobilized $3.28 billion of longterm cofinancing and $3.69 billion of cofinancing in trade finance, microfinance, and supply chain finance programs. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $13.78 billion as of 31 December 2019.

Financing Partnerships

Financing partnerships enable ADB’s development partners, governments or their agencies, multilateral financing institutions, and commercial organizations to participate in financing ADB projects. The additional funds are provided in the form of loans and grants, technical assistance, and other nonsovereign cofinancing such as B loans, risk transfer arrangements, parallel loans and equity, guarantee cofinancing, and cofinancing for transactions under ADB’s Trade Finance Program and Supply Chain Finance Program.

ADB began cofinancing operations in Indonesia in 1973. Since then, sovereign cofinancing commitments for Indonesia have amounted to $7.50 billion for 52 investment projects and $228.25 million for 116 technical assistance projects. Nonsovereign cofinancing for Indonesia has amounted to $7.26 billion for 19 investment projects and $0.95 million for two technical assistance projects.

In 2019, Indonesia received $553.70 million in loan cofinancing from KfW for the Fiscal and Public Expenditure Management Program–Subprogram 3.

Projects Cofinanced, 1 January 2014–31 December 2018

Operational Challenges

Indonesia’s ambitious infrastructure development and reform program has stretched government capacities for project preparation and implementation. Procurement and complex land acquisition processes often cause project delays. In some sectors, a lack of coordination across different tiers of government complicates approval processes. While Indonesia’s legal and regulatory framework for environmental and social safeguards is relatively strong, the capacity to implement such a framework varies between government ministries and agencies.

ADB is liaising closely with government ministries and agencies to address these and other operational challenges. The bank is helping streamline procurement regulations and strengthen e-procurement, enhancing capabilities in project preparation and detailed engineering design, and improving environmental and social safeguard capacities. On the latter, ADB is collaborating with other development partners to support the government in establishing a center of excellence for training on safeguards.

Future Directions

ADB’s medium-term strategy and program in Indonesia will be aligned with the country’s national development plan covering 2020–2024. The bank will support socially inclusive and economically constructive investments that focus on developing human capital, accelerating public and private investment, addressing climate risk, and promoting environmental sustainability.

The ASEAN Infrastructure Fund is a financing vehicle created to support green and inclusive infrastructure in Southeast Asia.

ADB operations in Indonesia take a strategic, long-term, and programmatic approach to developing several sectors of the country’s economy—energy, public sector management, education, transport, agriculture natural resources and rural development, finance, and water and other urban infrastructure and services.

ADB continues to work toward maximizing development impact by introducing international best practices and innovative technologies, and by further improving efficiency in project preparation and implementation. The bank will also redouble efforts to maximize synergies between sovereign and nonsovereign operations, including the promotion of public–private partnerships in Indonesia.