Indonesia: Capital Market Development Program Cluster (Subprograms 1 and 2)

Evaluation Document | 21 December 2017

In the aftermath of the 1997–1998 Asian financial crisis, Indonesia undertook reforms including strengthening the banking sector. However, to return economic growth to pre-crisis levels, higher levels of investment were needed, particularly in infrastructure. Developing capital markets offered an opportunity to reinvigorate growth through more efficient financial intermediation. In addition, one of the lessons from the Asian financial crisis was the lessening of dependence on the banking system by encouraging the development of capital markets, in general, and corporate bond markets, in particular. In this context, the Government of Indonesia adopted a Capital Market Master Plan (CMMP) 2005–2009 and sought Asian Development Bank support to develop the country’s capital markets. The CMMP was part of a structural reform agenda that included an Investment Policy Package (2006), an Infrastructure Reform Package (2006), a Financial Sector Policy Package (2006), and an Investment Law (2007).

The Capital Market Development Program Cluster was a response to the government’s request for support and was designed as two single-tranche subprograms of $300 million each. It had four objectives: (i) enhance information disclosure and improve price discovery in the capital markets, (ii) create deeper and more liquid securities markets, (iii) improve market surveillance and investor protection, and (iv) better governance and human resource capacity in market institutions. It included a post-program monitoring framework covering followup actions after program completion. Two technical assistance (TA) projects accompanied the program cluser. One was a TA project on Strengthening Regulation and Governance with an amount of $1.2 million. This TA aimed to help Bapepam-LK, the capital market regulator, implement key reforms under the program cluster. The other was a TA project on Strengthening Capital Market with an amount of $1.5 million. This TA aimed to support sustained implementation of the reforms beyond the program cluster period.

The program was successful, the evaluation found it relevant, effective, efficient, and likely sustainable. However, the evaluation found the program design to be less than satisfactory.