$500 Million ADB Loan to Support Indonesia’s Structural Reforms to Improve Business Environment

$500 Million ADB Loan to Support Indonesia’s Structural Reforms to Improve Business Environment

MANILA, PHILIPPINES (29 October 2021) — The Asian Development Bank (ADB) has approved a $500 million policy-based loan to support the Indonesian government’s efforts to foster a more competitive and investment-friendly business environment and accelerate the country’s economic recovery from the coronavirus disease (COVID-19) pandemic.

The first of three subprograms of the Competitiveness, Industrial Modernization, and Trade Acceleration Program supports Indonesia’s reforms that have made it easier to start a business, attract foreign direct investment in manufacturing, and simplify land-related transactions to investors. It also aims to help the government improve logistics services, facilitate trade, foster job creation, and provide incentives for firms to adopt new technologies and upgrade worker skills, among others.

“The policy-based loan, combined with technical assistance and knowledge work, is designed to be an integral part of the government’s post-COVID-19 pandemic recovery strategy. The subprogram will help Indonesia create an enabling environment for investments, ease barriers to trade, and grow enterprises,” said ADB Director for Public Management, Financial Sector, and Trade Division for Southeast Asia Jose Antonio Tan III. “The program supports the implementation of ADB’s country partnership strategy for Indonesia, 2020–2024, in particular the strategic pathway on accelerating economic recovery through reforms.”

Indonesia enjoys abundant natural resources, a young workforce, and a large domestic market. But annual economic growth had remained at 5% on average until COVID-19 hit, the first time the economy contracted since the Asian financial crisis. An annual growth rate of about 7% would be required for Indonesia to achieve its goal to recover from the pandemic and become a high-income country by 2045.   

Structural reforms will be needed to achieve faster, more inclusive, and sustainable economic growth. The country’s economic expansion has been largely driven by the export of commodities, exposing the economy to deteriorating terms of trade. Manufacturing’s share of the economy declined to 20% in 2019 from 32% in 2002. In addition, private investment is concentrated in the resources sector and digital economy, with limited impact on job creation.

To address these constraints on growth, the government recently launched critical and wide-ranging reforms to promote investments, simplify bureaucracy, and accelerate human capital development. The government also aims to improve logistics and trade, as well as firm productivity. These reforms will lower barriers for investors, reduce costs and increase transparency for the private sector, increase competitiveness, and facilitate enterprise growth.

The Competitiveness, Industrial Modernization, and Trade Acceleration Program also seeks to promote gender equality by improving data collection on women-owned businesses and increasing women’s participation in government contracts. By supporting the medium-term development plans, the program is aligned with the government’s climate goals, or nationally determined contributions, under the Paris Agreement.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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