The Asian Development Bank (ADB) has agreed to finance Indonesia's ambitious project of empowering those living in rural areas through a disbursement of a loan worth US$84.2 million.
The ADB said in a statement Friday its board of directors had approved the loan to finance the National Program for Community Empowerment (PNPM Mandiri), praising the program as "one of the world's largest community-driven development projects".
PNPM Mandiri, first introduced in 2007, focuses on providing financial aid to various community-based programs that aim to increase the quality of its members.
The programs are chosen and designed by communities at district level.
The ADB financing will specifically support programs to alleviate poverty and to improve infrastructure in about 1,500 villages in the four provinces of Jambi, Lampung, Riau, and South Sumatra.
Indonesia has more than 73,000 villages and 33 provinces.
The ADB said PNPM Mandiri had proven to be successful in reducing poverty and improving the basic infrastructure in rural areas.
"The basic infrastructure will help build the country's social capital as it will increase the availability and accessibility of about 1.5 million people to education and health services," it said.
In 2008, the government allocated Rp 7 trillion ($6.5 billion) from the state budget to finance the people-empowerment program.
This year, the government has earmarked Rp 34 trillion to finance projects in 6,408 districts, with the hope of creating 4 million jobs.
Commenting on the program, Gadjah Mada University economic analyst Sri Adiningsih told The Jakarta Post the government must make sure the financing was spent on productive activities instead of on those that would boost consumptive behavior.
"I think it's better for the government to develop micro, small and medium businesses," she said.
"That way, it will be more sustainable."
She said there were currently 50 million small- and medium-scale businesses in the country, making up 95 percent of all businesses. That figure is on the rise as the formal sector has failed to provide enough jobs, shunting people into the informal sector.
The Central Statistic Agency (BPS) reported in February that the number of unemployed people in Indonesia was 9.25 million, or 8.14 percent of the total working population.
BPS data from April 2009 showed there were 35 million people living in poverty (less than $1 a day), or 15.4 percent of the total population.
However, based on criteria laid out by the World Bank, which categorizes people as living in poverty if they have an income of less than $2 a day, almost 60 percent of the Indonesian population is classified as poor.
Indonesia is the ADB's largest debtor as of December 31 last year, with $23.5 billion in loans. It is also the second-largest recipient of technical aid, at $276.6 million.
Finance Minister Sri Mulyani Indrawati said the ADB had earlier this year earmarked for Indonesia a $1 billion standby loan, outside of the regular loans for the people empowerment programs.
This will be used to plug the country's potential budget deficit this year.
Mulyani said $500 million of the loan was ready to be withdrawn.
