December 11, 2017
On December 11, the Japan International Cooperation Agency (JICA) signed a loan agreement with PT. Indonesia Infrastructure Finance (hereinafter the “IIF”) of the Republic of Indonesia in Jakarta with the objective of providing financial support for infrastructure projects to be financed by the IIF.
A financial agency specializing in infrastructure projects, the IIF was established in 2010 with public and private equity participation with the objective of promoting the participation of the private sector in infrastructure projects under the leadership of the Government of Indonesia. Equity has been provided by PT. Sarana Multi Infrastruktur (Persero), a government-owned financing company, the International Finance Corporation and the Asian Development Bank, international financing agencies, and Sumitomo Mitsui Banking Corporation, a private financing institution and others. In the seven years since the IIF was founded, financing from the IIF has expanded rapidly as the demand for infrastructure financing has grown.
Although economic growth has become stable in recent years in Indonesia, the infrastructure has not kept pace, and developing infrastructure that is adequate in quantity and quality is essential for achieving sustainable economic growth. The National Development Planning Agency Republic of Indonesia (BAPPENAS) has estimated that 5.519 trillion rupiahs (approximately 50 trillion yen) in funding will be needed over the five-year period from 2015 to 2019, and under the assumption that 30 percent of that amount will come from the mobilization of private funds, there are strong expectations for private investment in infrastructure.
Although JICA has ¬¬continuously provided assistance through technical cooperation and grant aid to support infrastructure in Indonesia, the present financing will generally promote the mobilization of private funds for infrastructure development including renewable energy in Indonesia. This support is expected to have the effect of improving the business and investment environment while accelerating economic growth through the leadership of the private sector, and it is further expected that this will provide support for Japanese companies and other international players to participate in infrastructure projects in Indonesia.
This loan includes Indonesian rupiah-denominated financing and is the second JICA loan, as private sector investment finance, to be local currency-denominated, following such a loan in the Philippines. Many infrastructure projects have revenue denominated in local currency and local currency-denominated financing is effective as this is a long-term project. In addition to making it possible for the IIF to procure long-term financing in local currency, the project is expected to have the effect of mitigating the risks of foreign exchange.
For example, for small-hydro power plant projects, these efforts will contribute to overcome the challenge on technical issues, such as quality of feasibility study and construction management and on financial matters by to providing long-tenor and low-interest project finance type of loan.
JICA will continue to strengthen partnerships with private companies while promoting the formation of projects contributing to socioeconomic development in developing countries and regions.