MANILA, PHILIPPINES (22 October 2003) - The Asian Development Bank (ADB) plans a lending program to Indonesia of up to US$3.27 billion over the next three years, according to its Country Strategy and Program (CSP) Update for 2004-2006 endorsed today by ADB's Board of Directors.

The realization of the program will depend on timely actions in the Government's reform program and resolution of project implementation issues.

"The program will carry out a balanced mix of poverty reduction programs, accounting for 57% of the 30 projects planned, along with other assistance to promote economic growth," says Shiladitya Chatterjee, ADB Principal Programs Coordination Specialist.

ADB's CSP for Indonesia, finalized in September 2002, addresses the main medium term needs of the economy, stressing improvements to governance, meeting local needs through decentralization, human development, environmental management, and raising the country's long-term growth potential.

CSPs define ADB's medium-term development strategy as agreed with the country. A CSP update is prepared every year taking into account the continued relevance of the CSP, its implementation, and ADB's operational program for the next three years.

"The Update concentrates ADB's assistance more on the primary focus areas of the strategy so that more intense attention can be paid to their design and implementation, and targeting them more geographically," says David Green, Country Director of ADB's Resident Mission in Indonesia.

There is a growing consensus in Indonesia that lack of investment is the economy's main constraint to growth and poverty reduction, the CSP Update says. The economy grew by only 3.7% in 2002 and this is likely to moderate to 3.4% in 2003.

There has been a steady reduction in poverty incidence from a peak during the Asian financial crisis of 23.5% to 18.2% in 2002. However, rural poverty remains high as a result of poor agricultural performance.

Thus, of the 30 loan projects in the program over the next three years

Seven projects are planned in the agriculture and natural resource sector, tackling aquaculture development, community-based land rehabilitation, flood management in Java river basins, enhancement for tree crops, water resources management, fisheries and coastal resources, and rural sector development.
Energy and transport projects will include road rehabilitation, inter-island transport, airport rebuilding, and air quality improvement, including a clean vehicle fuel for Blue Skies project in 2004.
Nine projects in the social infrastructure sector will improve education, water supply services, urban infrastructure, housing finance, and social protection.
Industry and finance projects will include assistance for state-owned enterprises, local government financing, social security development, and small and medium enterprises.
While endorsing the CSP Update, Board members emphasized that the actual lending level should not compromise absorptive capacity or project quality. The need to focus adequate resources on improving portfolio performance was also stressed by several Board members.

To complement the loans, a technical assistance program of $12 million-$14 million per year is planned. The ADB lending and TA program will support the Government's new 'White Paper'-a reform package recently announced to guide and implement structural reforms over the medium-term.

To promote governance, assistance is programmed in areas such as support to the Partnership for Governance Reform, strengthening civil society, improving monitoring capacities over oversight agencies, and for anticorruption efforts.

The Government is implementing the financial reform program, aimed at building a sound financial system. As part of this, the draft law on an integrated Financial Supervisory Authority is under discussion in Parliament.

ADB support in the gender area includes prevention of trafficking and protection of female migrants.

Several monitoring and evaluation studies have been programmed both for assessing the impact of overall operations as well as in some sector and thematic areas. Advisory TA in sectors focuses on capacity building and policy and institutional development.

Since joining ADB in 1966, Indonesia has received 263 loans totaling $19,096.2 million, of which 62 were active at the end of 2002, as well as 433 technical assistance grants totaling $200 million.

Source :  Office of the Coordinating Minister for Economic Affairs