Ririn Radiawati Kusuma
The Islamic Development Bank on Wednesday agreed to provide as much as $3.3 billion of financing through 2014 to speed Indonesia’s economic growth.
“We are focusing on poverty, health and infrastructure. In line with IDB’s strategic priorities, we are committing to provide soft loans for its member, including Indonesia,” bank president Ahmad Mohammed Ali said.
The Saudi Arabia-based bank’s Member Countries Partnership Strategy program helps its 56-member states raise living standards and improve the investment climate and human resources. The financing is Shariah compliant.
Some 34.7 percent of the funding to Indonesia is earmarked for the private sector, including small- to mid-sized businesses, followed by infrastructure at 26.3 percent, education and human resources at 19.8 percent and the rest for agriculture and rural development. Around two-thirds of the financing is targeted at Sumatra, Kalimantan and Sulawesi.
According to state estimates, Indonesia needs about Rp 1,600 trillion ($170.4 billion) in infrastructure investment from 2010-14 to meet its target of 7 percent growth by the end of the span, but the budget can only provide 30 percent of the funding.
“That’s why we invited the bank here – we need them to help plug the investment gap,” said Armida Alisjahbana, head of the National Development Planning Board (Bappenas).
Bambang Brodjonegoro, head of fiscal policy at the Finance Ministry, expected the loans to help harness regional potential, while Minister Agus Martowardojo said the funding would also support Shariah microfinancing.
The majority of the financing has already been finalized, with the IDB signing an agreement in March to provide $2.5 billion for 159 projects.
As part of the soft-loan package, $87 million has been allocated to expand Belawan port in Medan, as well as $102 million to help small farmers on Sumatra Island expand the coffee sector. The IDB is also making $159.45 million available to the National Community Empowerment Program (PNPM), and offering a total of $105 million in educational funding for Universitas Negeri Semarang, Universitas Padang and IAIN Sunan Ampel, an Islamic state college.
Morgan Stanley told Bloomberg on Wednesday that Indonesia would need to spend even more on infrastructure, pegging investment at $250 billion per year through 2015 to boost growth and tackle problems in distribution and transportation.
Total spending on infrastructure, both public and private, reached only 3.9 percent of gross domestic product in 2009. If such investment can be raised to 5.9 percent of GDP by 2015, growth can reach 7.2 percent. The economy expanded 6.1 percent in 2010.