US grants Indonesia $649 million for infrastructure, small business development

While such opportunities are plenty in developing countries, investors are not fully seizing them due to gaps in the enabling environment.

Divya Karyza

Divya Karyza

The Jakarta Post


US Treasury Secretary Janet Yellen (left) shakes hands with Indonesian Finance Minister Sri Mulyani Indrawati (right) over an agreement on a $649 million grant from the US Millennium Challenge Corporation (MCC) for development projects in Indonesia. MCC Alice Albright joined the signing ceremony at the International Monetary Fund in Washington, DC, on April 13, 2023.(Millennium Challenge Corporation (MCC)/-)

April 17, 2023

JAKARTA – Indonesia is to receive a grant worth US$649 million from the United States to fund infrastructure development and small business projects across the country.

Finance Minister Sri Mulyani Indrawati and US Treasury Secretary Janet Yellen concluded negotiations to launch a $698 million fund, with $649 million coming from the US Millennium Challenge Corporation (MCC) and $49 million from Indonesia, to support the development of climate-conscious transportation infrastructure in five provinces and increase access to financing for women-owned micro, small and medium enterprises (MSMEs).

“With this investment, we will have worked together on projects worth, in total, over $1 billion. The compact signed today will focus on sustainability and scalability, improving the country’s resilience against climate change and other external shocks while creating more opportunities for business owners to access the market capital,” said Yellen, who is the vice chair of MCC’s board of directors.

The Indonesia Infrastructure and Finance Compact consists of three projects: advancing transport and logistics accessibility (ATLAS), access to finance for women-owned MSMEs and financial markets development (FMD).

“Through this program, the US government continues to commit to not only taking part in the global economic recovery but also alleviating world poverty through grants and assistance to various countries,” Finance Minister Sri Mulyani said in a statement on Friday. “We hope this program will provide benefits for the people of Indonesia, especially in alleviating poverty.”

Indonesia and MCC first partnered in 2006 with a $55 million program aimed at reducing corruption and bolstering immunization rates.

In 2011, Indonesia and MCC partnered through a $474 million MCC-Indonesia Compact program focused on health and nutrition, sustainable land and energy management as well as modernized government procurement.

Developing countries in the Asia-Pacific region face an infrastructure gap of $22.6 trillion through 2030, Asian Development Bank (ADB) data show.

Several challenges hamper infrastructure development. While infrastructure investment opportunities are plentiful across developing countries, investors are not fully seizing them due to gaps in the enabling environment for such investments, according to an Organization for Economic Cooperation and Development (OECD) report.

The infrastructure sector presents specific risks to private-sector investors, the report notes, and since private participation in infrastructure delivery is a relatively recent form of procurement in many countries, governments do not necessarily have the experience and capacity needed to effectively manage these risks.

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The compact is also aimed at supporting Indonesia’s Just Energy Transition Partnership (JETP) and the development of climate-resilient infrastructure according to the Partnership for Global Infrastructure and Investment (PGII) standards.

That includes $50 million in grants to lower financing costs and spur private investment in Indonesia’s energy transition, including coal decommissioning, and $15 million in technical assistance also aimed at accelerating the transition to clean energy.

Rebranding the faltering Build Back Better World partnership launched in 2021, the US announced $600 billion in PGII funding to be disbursed over a five-year period.

Announced at last year’s Group of Seven summit in Germany, the move is seen as a way to counter China’s Belt and Road Initiative. The US aims to contribute one-third, or $200 billion, to the fund.

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