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World Bank loan aimed at mitigating Indonesia's macroeconomic risks
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A stage director looks on at the IMF/World Bank Annual Fall Meetings Plenary Session in Washington, DC, on Oct. 18, 2019. (AFP/Andrew Caballero-Reynolds)
T
he World Bank has approved a US$400 million loan to Indonesia so that the country can mitigate what the bank calls substantial macroeconomic risks stemming from a financial sector left vulnerable by the COVID-19 crisis.
“A marked deterioration of corporate liquidity and solvency conditions could negatively affect [Indonesia’s] banking sector through lower profitability and deterioration of asset quality,” states a report published on May 13 by the World Bank’s lending arm, the International Bank for Reconstruction and Development. The Washington, DC-based lender noted a decline in Indonesian bank credit growth at the end of 2020.
The $400 million loan approved on June 10 is part of a multi-loan program to increase the depth, improve the efficiency and strengthen the resilience of Indonesia’s financial sector. Specifically, it aims to mitigate macroeconomic risks “by supporting improvements in the insolvency regime [...] strengthening the resolution framework [...] and financial sector oversight”.
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As a condition for the approval of this second loan, the government had to meet goals under each of the three aspects of financial sector improvement.
“The loan has specific results indicators for each reform that will help [measure] the progress made in achieving the stated objectives,” Lestari Boediono, senior external affairs officer of the World Bank, told The Jakarta Post on Friday.
Read also: Credit risk remains high in Indonesia despite recovery: S&P
