In fact, the World Bank manages one of the largest Trust Fund programs in Indonesia which pool grants both from the Bank and from Donor countries. Currently, the Bank administers some 300 Trust Funds worth a billion dollars, of which US$750 million is dedicated to the reconstruction of Aceh and Nias. The remaining grants provide development support for other sectors such as water, education and decentralization support.  

Why does the World Bank continue to lend despite Indonesia’s debt burden?  

The Government of Indonesia is committed to reducing poverty and has managed its debt burden very effectively to fund growth. The World Bank believes that it combines technical expertise, with world wide experience in well structured projects (in, for example, education, health, and infrastructure) to create quality growth. This kind of borrowing assists development rather than preventing it. Good projects deliver national assets that reduce poverty, generate employment, and improve living standards.

In 2006 Indonesia’s growth rate reached a post-crisis high of 5.5 percent. Despite this growth, 2007 government data shows 16.6 percent of Indonesians were still living below the country’s poverty line. The Bank shares the people of Indonesia’s goal to reduce poverty and increase growth.

Does government debt squeeze expenditures for development purposes?

No, as indicated above, government spending on development has now reached pre-crisis levels. In fact with high international oil prices the Indonesian Government (at the Central and Regional levels) have an unprecedented opportunity to increase spending to improve growth and reduce poverty.  

After three decades of engagement how has Indonesia benefited from the World Bank?

Community-led Development: Apart from creating important national assets in infrastructure, health, education and food security (see Results Highlights), Indonesia’s community-driven Kecamatan Development Program has become a model for other developing countries. Currently operating in over 34,200 of the poorest villages, the KDP alone has built over 27,690 kms of roads, 6,040 bridges, 6,740 irrigation systems, 6,565 clean water supply units and 2,660 sanitation units. It has built or renovated 1,450 village health posts and 760 scho ols, given scholarships to over 61,000 students. Over 650,000 small businesses have been set up through the KDP. more..

Infrastructure: The biggest component of the Bank's infrastructure program has been in roads -- providing support for periodic maintenance on about 800km of national/provincial roads and 5700km of kabupaten roads, 1600km for betterment/rehabilitation, and about 400m of replacement of bridges under SRRP and EIRTP-1. more..

In the energy sector, the Bank is assisting the State Power Company (PLN) to invest in upgrading their transmission network to eliminate system bottlenecks to improve its performance under the Java-Bali Power Sector Project; and the State Gas Company (PGN) to invest in expanding their gas supply infrastructure to address supply shortfalls in Java through the Domestic Gas Market Development Project. The Bank is engaged in water and solid waste management, in restructuring the state-owned water utilities (PDAMs); and providing assistance for physical investments in developing compost plants and landfill sites. In addition, a large community-based urban poverty program, covering 236 local government and more than 6,500 kelurahans have been developed to benefit more than 2.7 million household from infrastructure activities. The program also supports improvement of urban service facilities for 13 urban local governments under the Urban Sector Development Reform Project.

Governance: A number of Bank-supported initiatives are helping the country to fight corruption whether through institutions like the Corruption Eradication Commission and the Supreme Audit Board, government reforms for revenue management and capacity building for local government initiatives such as Justice for the Poor

Health: A sustainable approach to improving health of poor communities is to involve them in addressing their own water and sanitation needs. A Bank-supported program has helped establish functioning water supply systems in over 1,020 villages, serving over 2 million villagers. The program is now being scaled up to benefit some 5,000 communities with a population of around 12.5 million.

Over 5,000 medical students have been trained through a capacity building program and specialist doctors are being trained in a hospital-based pilot program. Over 40 clinics and hospitals have being built in Aceh through an MDF grant.

In collaboration with GOI and other donors, the Bank has supported reduction of maternal mortality from 400 in 1987 to 307 per 100,000 in 2003 and training for 3000 midwives in110 districts. This contributed to the increase of professional assisted birth delivery from 18% in 1991 to 44% in 2002.

Education: The Bank has supported Indonesia with 26 projects totaling $1.5 billion over the past 20 years. The Bank has supported policy reforms and piloted innovative management schemes such as: giving districts block grants for education; direct grants to schools; scholarships to poor students; community-led school rehabilitation/construction program and integration of Early Childhood Development in the Education Act. This program will help pre-schoolers in 6000 of the poorest communities receive a strong foundation for personal growth and development.

Overall, the Bank has helped seven basic education projects establish more transparent budgeting, planning, and management; and to roll out new policies on teacher management and performance.

Sustainable Development: As an example of World Bank commitment to preserving Indonesia’s unique natural resources, a 15 year Coral Reef Rehabilitation and Management program begun in 1998 is reviving endangered reef ecosystems, placing 4,750 sq kms under sustainable management by coastal communities thus preserving their livelihoods and 9% of Indonesia’s coral beds. For a complete listing of our previous and active projects visit our website at:

How much is paid annually by Indonesia to external creditors? How much is paid to the World Bank?    

Preliminary 2006 budget results indicate that the central government paid Rp.79 trillion (US$8.6 billion) in interest and Rp.52.7 trillion (US$5.8 billion) in principal to external creditors. As a share of GDP, Indonesia’s total debt servicing (sum of interest and principal payment) fell from 4.9 percent in average share 2003-2005 to 4.7 percent in 2006. Government of Indonesia’s principal and interest payments to World Bank were US$1.4 billion and US$0.5 billion respectively in 2006. As a share of total national debt service, the World Bank accounted for 10.6 percent.

How do World Bank interest rates compare to other sources of government finance? Are they higher in some cases?  

As a development bank, the World Bank provides loans ranging from 0 percent interest to some of the world’s poorest countries as well as grants for post conflict countries and low income countries under stress. Indonesia is a low-middle income country and currently receives two types of loans: (a) International Bank for Reconstruction and Development (IBRD) and (b) International Development Association (IDA). IBRD loans are concessional with a maturity of 20 years, a grace period of 5 years and with interest rates that vary but that are well below market rates.

IDA lending is mainly targeted at the poorest countries and sometimes to low-middle income countries for specific programs that focus on poverty reduction. IDA lending is interest free and repayments are stretched over 35 to 40 years, including a 10-year grace period. For this reason these ‘loans’ are called ‘credits’. During the period of the current CAS or since 2004, Indonesia has received IDA credits of $948 million with another US$362 million earmarked for 2008.(see IDA in Indonesia)’ New credits have a 35 year maturity period with 10 years grace. The principal will be paid at the rate of 2.5 percent per year during years 11-20 and at 5 percent per year during years 21-35, making this the most competitive source for development support .

Is the World Bank helping GOI to manage its debt?

The World Bank, in collaboration with other donors, is working with the Government to improve the management of its public debt, including contingent liabilities. This involves support for capacity building in debt and risk management (currency, interest and roll-over risks) as well as advice on operational risks and institutional reforms. It also includes assistance to the government on institutional issues and capacity building to assess contingent liabilities linked to public private partnerships in infrastructure and other areas.  

Several African countries have received debt relief from the World Bank, why not Indonesia? Is it possible for some part of Indonesia’s debt to be rescheduled?  

The decision taken by the G8 at Gleneagles resulted in 29 countries being approved for nominal debt service relief under the Highly Indebted Poor Countries initiative. These 29 countries are very poor with an average per capita income of US$340 in 2004. By comparison Indonesia’s per capita income was $1,110 in 2004 (and US$ 1,410 in 2006) .

Eligibility for HIPC is based on an assessment that a country’s external debt is too high to make debt levels sustainable. Such countries must also formulate a Poverty Reduction Strategy Paper and show satisfactory performance in an IMF program.

Since the 1997 crisis Indonesia has received debt service rescheduling from the Paris Club. The country received three reschedulings since 1997 due to its inability to meet its obligations and its performance in an IMF supported program. In addition, after the earthquakes and tsunami in Aceh and Nias in 2005, Indonesia was allowed to reschedule again.

For more information on The World Bank and Debt please visit the following sites:

 The World Bank and Debt Issues

The Bank and Debt Relief

The Multilateral Debt Relief Initiative

More Resources on Debt Issues