The funds, to be released in two tranches of $500 million each, would be used to support Indonesia to strengthen fiscal and public expenditure reform, as well as to promote quality investment, bolstering the country`s efforts to reduce poverty and income inequality, according to the ADB`s statement received here on Friday.
The first loan would support the Fiscal and Public Expenditure Management Programme (FPEMP), which reflected ADB`s systematic approach in supporting Indonesia`s fiscal and public expenditure reform by helping the government improve budget preparation, transparency, and monitoring.
"The programme has enabled the government to increase targeted spending and improve the quality of spending in priority areas such as health and education in line with its implementation of the UN`s Sustainable Development Goals (SDGs)," said the Senior Financial Sector Specialist for ADB`s Southeast Asia Department, Sani Ismail.
ADB has been supporting public financial management and expenditure reforms in Indonesia since 2001. Approved in 2016, the first FPEMP helped Indonesia map its expenditure in line with its National Medium-Term Development Plan and the SDGs.
Building on that, the second programme would help synchronise the planning of national priorities with the entire budget cycle and expand social assistance programmes. It also complemented the government`s medium-term revenue strategy.
The government`s reforms in public expenditure management and budget transparency have been recognised internationally, with Indonesia ranking second in Southeast Asia in the Open Budget Index of 2017.
"Strengthening public expenditure management, particularly at the subnational level, will improve the delivery of public services," said Ismail.
The second newly approved ADB loan would fund the Stepping up Investment for Growth Acceleration Programme (SIGAP), which would help the government boost investment-led growth by making the country`s regulatory environment friendlier to businesses and investors.
"The programme will help the government boost efficient public and private investment, while also addressing investment constraints at the subnational level," said the Public Management Specialist for ADB`s Southeast Asia Department, Robert Boothe.
For nearly two decades, the ADB has worked with the Government of Indonesia to promote infrastructure development and investment competitiveness, because a high cost business environment and other investment constraints have contributed to a slowdown in Indonesia`s economic growth in recent years.
"The reforms include consolidating and expediting business licensing processes, institutionalising good regulatory practices, and introducing various tools and systems to help the government implement its public investment programme," noted Boothe.
The new loan would be the third -- and final -- installment for the SIGAP programme, which began in 2014 with a loan to address specific constraints to both public and private investment.
The ADB approved another loan in 2016 to support a stronger framework for public-private partnerships, as well as the implementation of public procurement reforms to promote efficiency and transparency.
Government reform efforts to improve the business climate and accelerate investment were beginning to bear fruit. By the end of 2017, foreign direct investments reached a 7-year high, with growth in investments picking up by almost 2 per cent from 2016 levels.
Reform efforts had also improved Indonesia`s global competitiveness standings. Out of 189 countries in the the World Bank`s Ease of Doing Business rankings, Indonesia climbed from 114th in 2015 to 72nd in 2018.
Each of the $500 million loans would be complemented by the equivalent of $239 million in parallel financing from the German development cooperation through KfW Bank.
The ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.
Established in 1966, it is owned by 67 members -- 48 from the region. In 2017, ADB operations totalled $32.2 billion, including $11.9 billion in co-financing.