Indonesia Infrastructure and Finance Compact

Indonesia has the largest economy in southeast Asia and has charted impressive economic growth since the 1990s. However, Indonesia’s existing financial structures often prevent small businesses from accessing the finances they need to grow and keep the private sector from investing in infrastructure that would facilitate greater movement of goods and services. This can have big implications across the economy. Indonesia’s micro-, small- and medium-sized enterprises (MSMEs), which account for 99 percent of all active private enterprises in the country, are the focus of economic activity for most Indonesians. MSMEs engage almost 97 percent of the nation’s workforce and contribute about 62 percent of GDP. Similarly, with 17,000 islands, Indonesia has great infrastructure needs, but limited private sector investment, preventing goods from reaching new markets and citizens from participating in the global marketplace.

The compact, which will include a $49 million contribution from the Government of Indonesia in addition to the $649 million of MCC grant funding, seeks to assist the Government of Indonesia in tackling these issues by addressing a binding constraint to the country’s economic growth: costly and underdeveloped financial intermediation—or access to financing. The compact will specifically focus on improving the financing of infrastructure—particularly transport and logistics infrastructure—and increasing access to finance for MSMEs through three projects.

Financials

Compact Budget

Milestones

  • Signed:
     April 13, 2023

Compact Projects

Access to Finance for Women-owned/Micro-, Small and Medium Enterprises Finance (MSME Finance) Project

The MSME Finance Project will support digital, financial, and business capacity enhancement activities to strengthen, grow and increase sales for these businesses. The compact will also provide a gender-inclusive value chain finance activity aimed to increase loans issued to women-owned MSMEs. The project aims to enhance access to financial and non-financial services and to increase investment. Investing in MSMEs has wide-reaching impacts, as the growth of MSMEs not only directly increases the incomes of MSME owners, but it has the potential to create more jobs and help grow the overall Indonesian economy.

Advancing Transport and Logistics Accessibility Services (ATLAS) Project

The ATLAS Project will work with municipal governments across five off-Java provinces where transport and logistics are more constrained to develop sub-national government capacity and investment guidelines that will create a blueprint to facilitate greater capacity for infrastructure planning and preparation at the municipal level around the country. These investments will increase efficiency in the management and delivery of public investment as it relates to transport, and more specifically, the quantity and quality of transport infrastructure investments, including, but not limited, to: time savings for commuters, increased utilization of public transport modes, and reduced traffic congestion and emissions, as well as improved accessibility of transport services for women and disabled passengers.

Financial Markets Development Project (FMDP)

The FMDP will work with lenders and the private sector to leverage grant financing and form new partnerships that unlock existing money to fund lower-risk, high-quality infrastructure projects. These investments aim to increase the participation of private or commercially oriented infrastructure investments, especially Indonesian lenders, making markets more competitive and accelerating economic growth.

As of April 13, 2023