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Bank Indonesia encourages private sector to participate in infrastructure financing
Indonesia has introduced financing alternatives like project bonds, green bonds, Syariah bonds and structured products to raise funds for infrastructure projects.
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Sunrise flower garden at Barelang Bridge of Batam Island. The construction of bridges is part of the government's infrastructure development agenda. (Shutterstock/Dwi Yulianto)
Indonesia’s central bank, Bank Indonesia (BI), is encouraging the private sector to participate in financing the country’s infrastructure development as the government’s budget will not be enough to provide the required funds.
BI senior deputy governor Destry Damayanti said that private investment was one of the critical aspects of accelerating infrastructure development as the state budget (APBN) and traditional banking funding could not support all infrastructure projects.
“Indonesia’s ratio of infrastructure-to-gross-domestic-product (GDP) is at 43 percent. It is still below most developed countries with an average of 70 percent,” she said during her keynote speech at the Pivotal Role of Infrastructure Financing to Advance Sustainable Economic Growth discussion in Jakarta on Monday.
She said Indonesia has introduced other sources of financing kike project bonds, green bonds, Syariah bonds and structured products, such as asset-backed securities and collective investment contracts for real estate investments. About Rp 48.97 trillion (US$3.5 billion) was raised by issuing such financial instruments in August.
Destry, however, said she realized inviting the private sector to become involved in infrastructure developed is getting more challenging because of growing uncertainty in the global economy.
“Investors in infrastructure are hoping for more long-term financing, but what is available now only offers one year,” she said, adding that BI was looking for a candidate to become the central counterparty clearing (CPP) house.
BI’s Regulation No. 21/2019, which is to go into effect in June 2020, would stipulate that a CCP needs to be established as a limited liability company (PT) with a minimum paid-up capital of Rp 400 billion. The regulation would also cap foreign ownership in a CCP at 49 percent.
