IDB, Indonesia sign $1 bln co-financing agreement for infrastructure development

NUSA DUA, BALI –The Islamic Development Bank (IDB) has signed a co-financing agreement of up to $1 billion with Indonesia’s state-owned PT Sarana Multi Infrastruktur (SMI). 60 percent of the financing will be channeled into national infrastructure projects.

IDB president Bandar Hajjar said the money will be channeled into various schemes such as co-financing (public-private partnerships), co-investments (equity participation), and direct financing.

“The infrastructure of the cities of member countries is not equipped to handle their booming populations. The need for building better and smarter cities is inevitable,” said Hajjar on the sidelines of the 3rd IDB Member Countries Sovereign Investments Forum.

“70 percent of the world’s population are expected to live in cities by 2030. We must mobilise resources and funds towards sustainable development goals (SDGs). Additionally, infrastructure spending is not only to repair the existing but also to build new infrasturcture, including airports and roads,” said Hajjar.

“Indonesia can unlock the potential of its economy by growing more than 5 percent (per year) in the future. We expect this to support infrastructure spending,” he added.

Indonesia finance minister Sri Mulyani Indrawati said the government is focused on developing infrastructure and human resources, which would require a lot of investment. The government estimates a cost of no less than 4,900 trillion Indonesian rupiah ($370 billion) until 2019.

"The president has set 225 national strategic projects in order to increase economic growth and create more equitable prosperity for the bottom 20 percent of society. We are aware that the state budget, local governments or even through state-owned enterprises assignment alone is not enough,” said Indrawati.

President Joko Widodo said last year that only 1,500 trillion rupiah can come from the state budget.

“To that end we continue to develop innovative financing including PPP schemes, improvement of the business climate and ease of the private sector to more actively participate (in economic development)," added Indrawati.

Indonesia vice president Jusuf Kalla said he hopes Muslim countries can increase their direct investments in IDB member countries for infrastructure, agriculture and manufacturing industries. "The hope is that they divert to direct investments. Currently, a lot of their investments are only in stocks, bonds, and other financial instruments," said Kalla.

Indonesia will receive $7 billion in financing from the IDB for the next four years. This will be made up of $5.2 billion in financing, 32 percent of which will be channeled into education, 30 percent into infrastructure, and the remaining 38 percent into energy, financial and health sectors.

The IDB has extended $127.3 billion in financing to its member countries since it was established in 1975, according to Hajjar. 53.3 percent have gone into infrastructure projects, 10 percent to agriculture and 9.3 percent to education and health.

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