Board of Executive Directors approves US$ 2 billion loan to ensure continuity of public investments during global financial crisis and support market borrowings by the Government
WASHINGTON DC, March 3, 2009 – The World Bankâ€™s Board of Executive Directors today approved a unique US$ 2 billion Public Expenditure Support Facility for Indonesia, with a deferred drawdown option. The Indonesian Government can use these funds if market liquidity conditions continue to tighten and government access to international or domestic financial markets is limited.
The Indonesian Government has responded proactively and effectively to the current global financial turmoil by making arrangements that would help maintain the confidence of international and domestic markets, and allow the country to continue raising in the market the necessary funds for its development. This includes confidence-boosting policy measures, a stimulus package to reduce the impact of the crisis on the poor, as well as a back-up financing facility. The loan approved today is the largest component in a US$ 5.5 billion contingent financing facility, which the Indonesian Government has designed for the budget years of 2009 and 2010, based on the estimated financing gap that could arise due to tightening market conditions. The governments of Australia and Japan, as well as the Asian Development Bank are also in active negotiations to each provide US$ 1-1.5 billion to the facility.
â€śIndonesia has entered the global crisis from a strong position. Indonesia has shown resilience in the early stages of the crisis and has worked hard to contain the downside effects through preemptive and precautionary measures,â€ť said World Bank Country Director for Indonesia, Joachim von Amsberg. â€śHaving to contend with a crisis and with risks that are not of its own making, the Government of Indonesia is implementing a substantial reform agenda aimed at calming financial markets and continuing public investments for growth and poverty reduction. We are very proud and happy to be able to support the Government of Indonesia in its management of the crisis impact. We are providing this extraordinary support to a country that is managing the impact of the global crisis in a very effective way.â€ť
The Public Expenditure Support Facility reinforces Government policies to: (a) reassure financial markets and maintain financial system stability, (b) sustain critical public expenditures during the international crisis, and (c) crowd in private investments and support exports through investment climate reforms. Government can access the resources from the facility to finance important social and infrastructure programs if and when markets do not provide the needed financing at a reasonable cost. The facility will thus ensure that Government does not cut back critical public services and investments at a time when these are most needed because of the global economic crisis and its impacts.
â€śThrough prudent fiscal policies, Indonesia has seen the most dramatic decline in debt-to-GDP ratio of any major economy in the region, dropping from 55 per cent in 2004 to about 30 percent in 2008. Therefore, Indonesia can afford to maintain or even expand public spending during the international crisis. The strong macroeconomic management of previous years is now paying off,â€ť continued von Amsberg.