ADB to Invest $140 mln in Indonesian fund to boost infrastructure
MANILA, PHILIPPINES - The Asian Development Bank (ADB) has approved investment of up to US$140 million in the government-backed Indonesian Infrastructure Financing Facility (IIFF) to support urgent infrastructure development in Indonesia.
Power outages, transportation bottlenecks, and other critical infrastructure shortages are holding back economic growth and poverty reduction in Indonesia but private-sector investment has been low because of the dearth of long-term financing from banks or through the capital markets.
The IIFF, conceived in 2007, will provide financial assistance in the form of long-dated debt instruments, equity, or guarantees for infrastructure projects. In doing so, it aims to attract six to seven times more private sector investment to Indonesia's infrastructure sector than there is now.
"There is a huge gap between needed infrastructure investments and the available financing. That has significantly constrained the expansion of crucial infrastructure in Indonesia - this project is expected to help close the gap," says Arjun Thapan, Director General of ADB's Southeast Asia Department.
ADB's investment will comprise up to $40 million for a 20% equity stake in IIFF and a 25-year loan of up to $100 million to the government-owned infrastructure holding company PT Sarana Multi Infrastruktur (PTSMI), which will relend the loan to IIFF as subordinated debt. The loan will have a grace period of 5 years.
"IIFF will finance commercially viable infrastructure projects by offering long-term financing and by providing the intellectual capital needed to catalyze public-private partnerships," says Philip Erquiaga, Director General of ADB's Private Sector Operations Department. "By limiting its exposure to 20% of the cost of any project, IIFF is expected to finance up to $5.5 billion of projects in its first 5 years of operations."
Investment in infrastructure in Indonesia has risen to 3.0%-3.5% of Gross Domestic Product (GDP) in recent years but is still below levels of 5.0%-6.0% per year prior to the 1997 Asian financial crisis. Much recent investment has been by the government while private investment has dropped sharply over the last 10 years to below 1% of GDP between 2000 and 2006.
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