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Jakarta Post

World Bank approves $300m loan to improve Indonesia's financial sector

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Mon, March 23, 2020   /   04:41 pm
World Bank approves $300m loan to improve Indonesia's financial sector The World Bank Group logo is seen on the building of the Washington-based global development lender in Washington, DC, on January 2019. (AFP/Eric Baradat)

The World Bank has approved the disbursement of a US$300 million loan to support the development of Indonesia's financial market by expanding its outreach and broadening the range of products.

World Bank country director for Indonesia and Timor-Leste Satu Kahkonen said that the country's macroeconomic fundamentals remained strong despite slowing poverty reduction, but she urged more action to help the middle class achieve financial security.

"A sound and well-functioning financial sector is critical to sustain Indonesia’s growth and to achieve the government’s economic growth and poverty reduction goals, particularly amid the continued challenging global conditions," Kahkonen said in a statement made available to the press.

The loan would also be used to improve efficiency in the financial sector through the use of modern technology.

Furthermore, the fund would be used to strengthen the resilience of the sector to withstand shocks by promoting sustainable finance and establishing disaster-risk finance mechanisms.

Read also: Digital payments boost financial inclusion in 2019

A lack of robust economic growth has hampered efforts to lift people out of poverty, with the number of poor recorded at 24.79 million people, or 9.22 percent of the population, in September 2019, Statistics Indonesia (BPS) data published on Jan. 15 show. Indonesia's economy grew by 5.02 percent in 2019, the weakest since 2015, as investment and exports cooled.

The government’s baseline scenario was for Indonesia’s gross domestic product (GDP) to grow more than 4 percent this year amid the coronavirus (COVID-19) pandemic, Finance Minister Sri Mulyani Indrawati said Friday.

Under the assumption that the pandemic would last six months, that global trade would slump by 30 percent and that the country would go into lockdown, economic growth could fall to between zero and 2.5 percent, she warned.

The World Bank estimated that about half of the adult Indonesian population do not have access to bank accounts, leaving them with limited opportunities to protect themselves against financial and nonfinancial shocks.

"A further acceleration of reforms that promote efficiency and inclusion while not compromising stability is now needed to finance the infrastructure gap and broaden economic opportunities for individuals and firms in Indonesia” said Luky Alfirman, a director general for financing and risk management at the Finance Ministry.

The Asian Development Bank (ADB) on March 3 also announced it would provide around $2.7 billion in loans this year to support Indonesia’s human capital, infrastructure and green energy development.

Read also: ADB to provide Indonesia with $2.7b in loans to support human capital, infrastructure development

ADB president Masatsugu Asakawa said the bank planned to provide Indonesia with more loans this year than the $1.7 billion it provided in 2019. The bank plans to provide Indonesia with $500 million for a competitiveness enhancement program and another $500 million for a financial inclusion program this year.

“We want to expand ADB’s support for human capital development and infrastructure connectivity," Asakawa said during a news conference in Jakarta after a meeting with President Joko “Jokowi” Widodo.

On March 21, the ADB announced approval for a $3 million grant to support Indonesia’s fight against COVID-19, primarily for the immediate purchase of key medical equipment such as ventilators and personal protective gear, including gloves, coveralls and masks for health workers.

“The ADB is committed to supporting Indonesia in the fight to control COVID-19. This assistance will improve Indonesia’s ability to test people for the virus, manage severe cases and reduce the risk of transmission among health workers,” said Asakawa. “We will continue our work with the government and various partners to provide flexible solutions that will help Indonesia minimize the health and economic impacts of this pandemic.”

The grant is part of the $6.5 billion initial package to address the immediate needs of its developing member countries as they respond to the COVID-19 pandemic.