World Bank Offers Indonesia Up to $11 Billion in Loans
The World Bank offered a big chunk of funding to Indonesia, a signal that the Washington-based lender is pushing back against China’s ambitions to finance projects in the region.
On Wednesday, Jim Yong Kim, president of the multilateral lender, offered PresidentJoko Widodo as much as $11 billion in new loans during the next three to four years for basic infrastructure such as roads, seaports and improving the quality of its workforce.
The World Bank’s offer to Indonesia comes as China is driving an effort to establish the Asian Infrastructure Investment Bank, seen as a challenge to the Western-led financing institutions like the World Bank and the Asian Development Bank. Indonesia is one of the AIIB’s founding members, and has welcomed loans from the yet-to-be established bank to finance big-ticket infrastructure projects.
China has pledged billions of dollars for infrastructure projects in Asia: through commercial investments in Pakistan and Indonesia, and the Export-Import Bank of China, which has funded power plants and roads in places like Vietnam and Myanmar.
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President Widodo is targeting more than $400 billion for investment in infrastructure projects within the next five years, most of which is expected to come from private investors.
“We reiterated our commitment to continue supporting Indonesia,” said Mr. Kim after a meeting with Mr. Widodo in the president’s office in Jakarta. Mr. Kim also praised Mr. Widodo for “going in the right direction,” and reiterated the World Bank’s projection of 5% growth this year.
In March, Mr. Widodo visited Beijing and Tokyo to seek investments for projects like power plants, roads, seaports and railways from two of the world’s biggest economies. He walked away with preliminary commitments of $63 billion from Chinese companies, and just under $9 billion from companies in Japan.
Beijing’s push for its new infrastructure bank is a response to criticism that multilateral organizations like the World Bank and the International Monetary Fund are dominated by the U.S. and Europe and don’t heed the voice of developing countries.
Last month at the opening of a conference of Asian and African leaders in Jakarta, Mr. Widodo called for a new global economic order that isn’t dependent on the World Bank, the IMF and the ADB “to avoid the domination of certain groups of countries.”
The World Bank loan shows that Jakarta remains open to getting money from a wide range of sources. It’s unlikely eager to become overreliant on China, which has a mixed track record in Indonesia.
In the 2000s, Chinese state-owned companies built a series of coal-fired power plants in Indonesia, backed by concessionary financing from Beijing. Indonesia complained the plants were poorly built and ran below capacity.
Jakarta also has grumbled that China announces projects but fails to follow through. China’s investment realization was just 7% of what was pledged between 2005 and 2014. That’s lower than Japan’s 65% and Singapore’s 40%, according to Indonesia’s investment board.
Still, those metrics may be improving. The board noted China’s actual investment rose to $800 million in 2014 from $297 million in 2013, and said Indonesia has received investment pledges totaling $13.7 billion from last October through mid-March from Chinese investors.