ADB approves $1 b loan to help Indonesia

The Asian Development Bank's (ADB's) Board of Directors has approved a $1 billion loan to Indonesia that will help the country sustain critical public expenditure for poverty alleviation, social protection and infrastructure maintenance in the wake of the global financial crisis.

It is one of the largest single loans ADB has ever provided to Indonesia.

The loan is being provided under Indonesia's Public Expenditure Support Facility Program which will allow Indonesia to enhance the country's financial safety net, better mobilize funds from commercial markets, and maintain financial sector stability, thereby reducing the Government's costs for borrowing from the market.

The financial crisis has significantly hindered Indonesia's ability to access funds from credit markets.

Economic recessions in several of Indonesia's major trading partners have also negatively affected demand for Indonesian exports, and hindered investment inflows.

"The global financial crisis has made it expensive for Indonesia to access international debt markets and trade finance, which could constrain spending on essential social services and poverty alleviation programs," said Director of ADB's Financial Sector, Public Management and Trade Division for Southeast Asia Department Jaseem Ahmed. "This loan will enable the Government to maintain public expenditure, and to respond more effectively to the poverty impacts of the financial crisis."

Indonesia's Public Expenditure Support Facility Program is part of a joint effort by ADB, the Governments of Australia and Japan and the World Bank to support Indonesia's financial crisis mitigation and budget financing agenda.

ADB's $1 billion loan brings the total amount of the Facility to $5.5 billion.

The Government may withdraw the Facility funds to meet quarterly financing shortfalls through the end of 2010.

The Government said it only intends to access the Facility if market conditions remain tight and the drawdown triggers set out in the financing plan are met. Indonesia is the first country among ADB's member countries to receive this type of standby loan.

The single-tranche loan will have a 15-year term, including a three-year grace period, with an interest rate determined in accordance with ADB's LIBOR-based lending facility. The loan has a contingent facility that provides the option for deferred drawdown.