APSN Banner

AIIB projects gradual economic recovery for Indonesia as virus causes 'temporary dip'

Jakarta Post - June 24, 2020

Adrian Wail Akhlas, Jakarta – The Asian Infrastructure Investment Bank (AIIB), a China-backed multilateral development bank, projects a gradual economic recovery for Indonesia as the coronavirus crisis will only be a "temporary dip" for the country's economy.

AIIB director general for investment operations Rajat Misra said Tuesday the coronavirus crisis was "one of those events that come very rarely in history".

"Many countries are going to see negative growth this year, but if Indonesia manages to remain in positive territory, it is going to be a commendable job," Misra told The Jakarta Post in an exclusive interview. "As the pandemic slows and the base effect kicks in, almost everybody is projecting significant GDP growth [for Indonesia] next year."

The government has projected that the gross domestic product (GDP) will grow at 1 percent this year under its baseline scenario, which would be the weakest rate since the Asian financial crisis of 1998-1999, or even contract by 0.4 percent under the worst-case scenario. It expects growth to between 4.5 percent and 5.5 percent next year.

The World Bank and the Asian Development Bank (ADB), respectively, have previously projected that Indonesia's economy would grow by 4.8 percent or 5.3 percent in 2021.

The AIIB approved on Tuesday a US$1 billion loan to strengthen Indonesia's health and economic response to the COVID-19 crisis.

AIIB's first loan for Indonesia, totaling $750 million and co-financed with the ADB, will be used for a project to support Indonesia's economic recovery, including aid for small and medium businesses and vulnerable households.

Furthermore, it has also approved a $250 million loan, in partnership with the World Bank, for a separate program to strengthen public healthcare, including testing, prevention and treatment of the virus as well as to boost hospital readiness, among other things.

The government has allocated Rp 695.2 trillion ($49.3 billion) in state budget funds to fight the health and economic impacts of the pandemic, expecting the budget deficit to widen to 6.34 percent of GDP this year.

The government was looking to borrow a total of $7 billion from multilateral organizations, including the ADB, AIIB, World Bank and Japan International Cooperation Agency (JICA), to help cover the deficit, government officials said last month.

"The COVID-19 pandemic has forced many developing countries to make difficult trade-offs to meet the urgent needs of their citizens. AIIB's support for Indonesia will contribute to the government's efforts to navigate these challenges during highly uncertain times," AIIB vice president for investment operations DJ Pandian said in a statement.

The loans are part of the AIIB's $10 billion funding facility to help the public and private sectors mitigate the COVID-19 impacts.

Misra said the bank, together with other multinational banks, would participate in monitoring the programs to ensure effective use of funds and to prevent moral hazard.

"AIIB will also go ahead with regular investment projects in infrastructure, such as building roads and power plants, as a way to kick-start the economy," he went on to say. "We will help in whatever way we can despite the constraints."

Two AIIB infrastructure projects are in the pipeline for Indonesia, namely a multifunctional satellite public-private partnership (PPP) project worth $150 million as well as the East Java and Bali power distribution project with state-owned electricity firm PLN worth $310 million. The bank has yet to approve the stand-alone financing of the projects.

Source: https://www.thejakartapost.com/news/2020/06/24/aiib-projects-gradual-economic-recovery-for-indonesia-as-virus-causes-temporary-dip.html