ADB approves 150 mln USD loan for Indonesia’s economic recovery

Jakarta (Indonesia Window) – The Asian Development Bank (ADB) has approved a loan worth 150 million U.S. dollars to support facilities that could accelerate Indonesia’s economic recovery from the COVID-19 pandemic.

The loan is expected to become a catalyst for government and private funding in supporting green and viable infrastructure projects to help Indonesia achieve the Sustainable Development Goals (SDGs).

The Sustainable Development Goals Indonesia One–Green Finance Facility (SIO-GFF), the first of its kind in Southeast Asia, aims to finance at least 10 projects, with at least 70 percent of the financing supporting green infrastructure and the rest supporting the SDGs.

The facility will design bankable projects to attract funding to supplement public expenditure, including from private, institutional, and commercial sources.

“The SIO-GFF aims to catalyze up to 8 times the funds invested to support climate-friendly infrastructure and help Indonesia make progress toward the SDGs,” said Unit Head of ADB’s Green and Innovative Finance for Southeast Asia and Country Director for Thailand Anouj Mehta in a statement received here on Wednesday (Feb. 16).

“It will boost the development of sustainable infrastructure and accelerate the country’s recovery from the COVID-19 pandemic by crowding in capital and creating jobs,” he added.

The loan to the Indonesian government will be re-lent to PT Sarana Multi Infrastruktur (Persero), or PT SMI, a state-owned infrastructure financing institution, which will administer the facility.

ADB also approved technical assistance to help strengthen PT SMI’s ability to implement the facility and eventually broaden the firm’s services to support other borrowers and catalyze private funding.

The technical assistance is funded with 1.2 million dollars from Australia’s Department of Foreign Affairs and Trade and 375,000 dollars from Luxembourg’s Financial Sector Development Partnership Special Fund.

“Indonesia is the world’s fifth-largest emitter of greenhouse gas emissions (GHG) and accounts for more than half of GHG emissions in Southeast Asia,” said ADB Senior Financial Sector Specialist Benita Ainabe.

“With innovative finance models incorporating global green standards, the SIO-GFF will help Indonesia focus on climate-resilient infrastructure as it recovers from the COVID-19 pandemic. We hope to build on our experience in Indonesia to extend the approach to other countries in the region,” she said.

Indonesia’s annual climate-adjusted infrastructure financing needs from 2016 to 2020 were estimated to be 74 billion dollars on average, with an annual infrastructure financing gap of 51 billion dollars, according to an ADB report.

The facility seeks to help manage credit risk during the life cycle of projects, especially the construction phase and the early years of commercial operations when cash flow is negative.

The facility will mainly offer loans, but may also provide equity, convertible debt, and guarantees, to reduce the credit risk of projects and attract commercial lenders.

The project is in line with Indonesia’s 2030 Sustainable Development Agenda. It follows ADB’s country partnership strategy for Indonesia, 2020-2024, which focuses on accelerating economic recovery and strengthening resilience.

Reporting by Indonesia Window