A US$500 million loan by the Asian Development Bank (ADB) is expected to help lower the cost and difficulty of doing business in Indonesia. The ADB agreed to advance the second tranche after the country rolled out agreed policy reforms to reduce barriers to investment.
To be supplemented by an additional $224.6 million from Germany’s State-owned development bank, KfW Bankengruppe, the ADB loan is the second under its ‘Stepping up Investments for Growth Acceleration Program’ and follows an earlier loan of $400 million in 2014, which was similarly supplemented by KfW Bankengruppe to the tune of $245 million.
Cumbersome regulations and high legitimate and extraordinary payments when establishing a business in Indonesia saw the the country ranked 109 out of 189 countries in the World Bank’s Doing Business 2016 report, well below regional neighbours such as Singapore, Thailand and Malaysia.
Three Phases Reform Programme
Although an improvement on 2015 when it was ranked 114, the report still ranked Indonesia 173 for starting a business, 148 for paying taxes, and 131 for registering property, while noting that the country had made some improvements under a three phase reform programme following the first round of funding.
According to Steven Tabor, country director at ADBs Indonesia Resident Mission, “Indonesia has been taking significant steps to improve the investment environment including, removing barriers to public-private partnerships (PPPs) and stripping away regulatory red tape. The 12 economic reform packages issued since September 2015 underscore the government’s desire to dramatically improve the investment climate.”
Under the policy reforms agreed to Indonesia has set higher foreign equity ceilings in land transport, shipping and management of ports, the establishment of a dedicated office to formulate land acquisition policy, and the development of a framework for e-procurement
The second phase has seen it taking additional steps to ease restrictions on investment, streamline processes for starting and operating a business, and widen the remit for PPPs.
The third phase, to be implemented between July 2016 and June 2018, will see the country taking further measures to expand evidence-based reforms, improve ease-of-doing business, strengthen PPPs, and enhance the government’s e-procurement system.
Rabin Hattari, public management economist at ADBs Southeast Asia Department, said: “Indonesia needs to create new engines of growth to return to a path of higher and more inclusive growth. Private investment will be critical to fostering a more diverse and resilient economy”
In 2015 foreign direct investment (FDI) in Indonesia grew by 19.2 per cent to about $27.7 billion (Rp 365.9 trillion) with the manufacturing sector accounting for more than 43 per cent of the total. For 2016 Indonesia’s Investment Coordinating Board, Badan Koordinasi Penanaman Modal (BKPM) is targeting FDI of some $45 billion (Rp 594.8 trillion).
- ADB Approves $500m Loan for Indonesia to Support Business, Investment Reforms (The Jakarta Globe)
- ADB approves 500 mln USD loan for Indonesia to continue investment reforms (Shanghai Daily)
- ADB agrees to extend $500 million loan to Indonesia (ADB agrees to extend $500 million loan to Indonesia (antaranews)
- Asian Development Bank approves $500 million loan for Indonesia’s energy sector (The Economic Times)