Government of Indonesia-ADB 2021 High-Level Policy Dialogue - Ahmed Saeed

Speech | 15 April 2021

Remarks by Ahmed M. Saeed, ADB Vice-President, Operations 2, at the Government of Indonesia (GOI)-Asian Development Bank (ADB) 2021 High-Level Policy Dialogue (HLPD), 15 April 2021

I. Opening remarks

Thank you your Excellency. We are very grateful for your time and your active support of the ADB-Indonesia partnership.

I also want to welcome Vice Minister of Finance, Head of Fiscal Policy Agency, Deputy Minister(s) from the Coordinating Ministry for Economic Affairs and our many other friends in the Government of Indonesia. And of course my colleagues at ADB, including Director General SE Asia, the Dean of our Board of Directors, Executive Director Syurkani, and Vice President for Knowledge Management Bambang Susantono.

In a nutshell, the message of my talk is quite simple: the ADB Indonesia relationship is in some ways stronger than it has ever been, but that is not good enough.

In 2020, our lending stood at $3.4 billion, with an additional $3.2 b of official cofinancing. For 2021, we plan to lend about $3.7 billion, plus official cofinancing of over $1 billion. These are our highest lending volumes ever.

And yet we must do more, and we must do better. The level of funding of course can never be the real indicator of our success, it is just the easiest one to measure. But money is also not enough because the challenges we confront are arguably the greatest that they have ever been.

What are these challenges? Even a partial characterization is daunting: to recover from gains – and years – lost to the COVID 19 pandemic. To re-build in a manner that is truly inclusive and genuinely equitable. This was always important but is even more so after the discriminatory impact of this terrible disease. To do all of this without violating our moral obligation to be responsible stewards of our planet, and in a manner consistent with national level climate commitments. And, of course, to accomplish all of this while returning to a posture of fiscal prudence. This is the very prudence after all that meant Indonesia had the resources to deal with the current crisis, and those resources may be needed again.

But that is not all. Indonesia must address these challenges while under a significant amount of scrutiny. Yours is now the world’s seventh largest economy, Indonesia is a member of the OECD, and is approaching upper middle-income status. The world increasingly looks to it as a model. With Indonesia’s chairmanship of the G20 around the corner, and Your Excellency’s election to Leadership of the Coalition of Finance Ministers for Climate Action, the world is watching in a way that it perhaps never has before.

Yesterday, I was reminded of the scale of the challenge you confront, albeit in a very different setting. I have been helping with my two school aged boys on their math homework recently. I can assure you it is a humbling experience.

Yesterday’s lesson was that there is no solution to a problem if there are more variables than equations, in other words if there are more challenges to be addressed than there are tools to address them.

This is a mathematical certainty in a simple Euclidean world. But in the real world, we must find solutions to the complex array of challenges ahead – COVID recovery, inclusivity, climate change, fiscal prudence - just to name a few, all presenting themselves at the same time.

So, in the real world, what can we do? Because our problems are larger and more complex than those in the past, we need to think in new ways and to develop new tools. The old ways alone are simply not up to the task.

This was in fact the central message of an op ed that I had the privilege of co-authoring recently with Vice Minister Pak Suahasil. The op-ed noted that Indonesia and the ADB have both raised their game and innovated in response to the current set of challenges.

The question for us as we set out on the next leg of our journey together is, how can we continue to evolve and to further raise our game to serve Indonesia better and to help it meet the challenge of what lies ahead?

The overarching framework for our partnership is of course our new 5-year country partnership strategy, approved in September. It is aligned with Indonesia’s medium term development priorities, and describes three key strategic pathways: First, improving peoples’ well-being (through investments in health, education & skills improvement, and social protection); Second, accelerating economic recovery, especially in the aftermath of the pandemic, and third, strengthening resilience (climate change, and disaster risk management). These are of course exactly the key challenges that I described in the opening of my remarks, and so our new CPS provides the right strategic framework with which to proceed.

From a resource perspective, the indicative, sovereign lending pipeline associated with this financing is expected to be about $3 billion per year over the medium-term.  From this, about $1 billion annually will be for policy-based loans linked to government’s reform priorities (competitiveness, human capital development, SOE reform, domestic resource mobilization), and there will be on top of this an additional $2 billion investment pipeline that include results-based and investment lending for infrastructure and social sectors.

As our work with you evolves, sovereign lending alone cannot be the only source of support – or even necessarily the main source of such support. We will strive in the coming years to do more – first, to to mobilize additional capital through flexible and innovative finance, second, to support Indonesia with quality knowledge solutions to meet its development goals, and third, to leverage all of our tools in conjunction to deliver platforms and other bespoke solutions to challenges being confronted by the Government.

  • For example, we remain active in seeking opportunities to provide financing to the private sector through our non-sovereign window as well as provide transaction advisory services for preparing infrastructure projects through public-private partnerships.
  • We have already stepped up our game on knowledge solutions, including providing analysis and technical assistance to support government structural reform agenda.  As many of you will know, jointly with the government, we have delivered detailed analysis and recommendation on important areas – including on moving up the manufacturing value chain with BAPPENAS, and work on the impact of new technologies with the Ministry of Finance.
  • We are keen to further step up on this work, and eager to identify specific areas where we can provide analysis and inputs that support your chairmanship of the G20 leaders’ summit in 2022.
  • Another area ADB will be focusing will be on developing platform solutions to complex multi-actor problems, including those associated with ensuring a just and equitable solution to climate challenges.  The ASEAN Catalytic Green Finance Facility Green Recovery Program, which helps accelerate regional action on climate change, is an example of such initiatives.

Allow me to close with some thoughts on areas where we might direct social energy in raising our game together. We are eager to work with you in these areas.

The first is: structural reforms.

  • We note the government’s reforms to investment and business climate through the Omnibus Law on Job Creation. The effective implementation of the reforms will be key to achieve the intended results of catalyzing investments, which in turn is needed to support a sustained recovery.
  • Strengthening domestic resource mobilization will be an area of structural reform where ADB can be especially helpful. Last year, Minister Sri Mulyani and President Asakawa announced the establishment of the Regional Hub to help economies improve domestic resource mobilization and tax cooperation. I would encourage the teams from ADB and the MOF (Directorate General of Tax) to continue to explore areas for collaboration in support of government’s tax reform priorities.

The second area is: tackling climate change. 

  • We note the government’s efforts on increasing green investments. Larger investments in green infrastructure will be needed to not only address climate change, but also avoid an infrastructure crisis. The government could consider more ambitious green measures – a green deal - that could be the thrust of the fiscal measures to support recovery efforts.
  • IMF, in a recent study (March 2021), estimates that multipliers associated with green spending are about 2 to 7 times larger than those associated with non-eco-friendly expenditure; and they also generate 3-4 times more jobs. Hence, a green recovery will be a win-win for both the economy and the planet.
  • One area we are very eager to work with you on is the need to design frameworks for a just equitable and speedy transition away from reliance on coal. A clean energy mix is increasingly important to foreign investors, and is therefore fast becoming a strategic advantage for certain countries.  We have discussed with some of those in this meeting a Energy transition mechanism, an initiative to accelerate the retirement of coal power plants, for which we are studying the opportunities in Indonesia.

II. Closing remarks

In closing let me thank you again for joining us for today’s session. In taking stock of where we stand, we have reason both to be happy with where we are, and also daunted by the challenges ahead. Please know that Indonesia will continue to have the full support of the ADB as it confronts these challenges and builds a better future for its people.