T

he Asian Development Bank (ADB) is aiming to extend a US$300 million loan to help the Indonesian government develop infrastructure facilities in order to cope with the distribution bottleneck in the country.

By developing infrastructure and improving the connectivity in impoverished and less-developed rural areas, Indonesia will be able to achieve sustainable growth, according to the ADB.

“Poor connectivity, infrastructure constraints and high logistic costs prevent Indonesia from reaching higher economic growth and spreading its benefits throughout the country’s entire population,” ADB’s deputy country director for Indonesia, Edimon Ginting, said in an official statement on Friday.

“For example, about 70 percent of the difference in rice prices throughout the country is attributed to shipping costs, a reflection of deteriorating roads, congested ports and underdeveloped inter-island transportation systems,” he added.

Indonesia has managed to maintain robust growth of at least 6 percent during the current global crisis, depending largely on its 240 million residents for massive domestic consumption, but analysts have warned that the economic expansion in the country might not be sustainable for over the long term due to the lack of infrastructure development.

The ADB said the loan would be used to support the government’s efforts in accelerating the development of better logistics systems and infrastructure to connect rural areas to urban growth centers. By doing this, the ADB said the government would eventually improve its international connectivity and strengthen connectivity coordination, legal and regulatory frameworks.

The ADB also said that the reforms afforded by the loan would provide substantial economic benefits by improving the delivery of social services, creating a more conducive business climate, promoting private sector participation in infrastructure services, enhancing new technology and innovation and generating job opportunities.

The loan was part of the ADB’s strong commitment to supporting the Indonesian government in executing its Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI), according to Edimon.

The MP3EI is a government program that is expected to trigger growth in Indonesia and, in the long run, make the country one of the top five global economies by 2025.

The program is mainly focused on infrastructure development in six corridors — Java, Kalimantan, Sulawesi, Sumatra, Bali–Nusa Tenggara and Papua–Maluku islands — across the archipelago.

The development of the corridors is expected to garner at least Rp 4,000 trillion ($468.5 billion) in investment in various projects within a 15-year period, spanning from 2011 to 2025.

The ADB will also be providing a grant worth $1 million for technical assistance to strengthen the capacity of government agencies, such as the National Development Planning Board (Bappenas), the Office of the Coordinating Economic Minister and the Transportation Ministry, so as to develop effective connectivity policies and improve coordination.

A lack of capacity among bureaucrats in properly planning and executing committed program and project loans is still a concern based on the latest data from the Finance Ministry.

The data shows that as of Oct. 31 this year, realized project loans stood at Rp 9.85 trillion, according to the Finance Ministry’s debt management office. This figure is equal to only 25.1 percent of this year’s project loan target, which stands at Rp 38.1 trillion.

Project loans from international organizations, such as the ADB and the World Bank, stood at Rp 2.62 trillion or only 6.7 percent of the target as of Oct. 31.