By Vivienne Russell | 24 September 2012
The Asian Development Bank is extending a $300m loan to Indonesia to develop financial markets in the country’s booming economy.
Announcing the loan extension today, Stephen Schuster, senior financial sector specialist in the bank’s southeast Asia department, said the success of the Indonesian government’s ‘ambitious’ national development plans was dependent on promoting investor confidence and inclusive financial services.
‘As a rapidly growing middle income country, Indonesia needs to increasingly tap domestic savings in order to mobilise spending on critical investments such as infrastructure and social services,’ he said.
It is expected that the loan, for Indonesia’s Financial Market Development and Integration Programme, will help foster the expansion and availability of non-bank financing, boost demand for capital market products and increase the number of Islamic-compliant insurance products available.
The ADB has been working with the Indonesian government for two decades to help it regulate and develop its domestic financial markets.
Most recently, policy reforms have strengthened financial sector surveillance and governance, supported the merger of Indonesia’s stock exchanges and helped with the creation of an independent bond-pricing agency. Anti-money laundering protocols have also been put in place and protections for investors been established.
The bank said that as a result of these and other reforms, the total amount traded in five benchmark government securities increased 25-fold between 2007 and 2011 and there has been a surge in corporate bond issuance.
It also praised the Indonesian government’s ‘prudent’ fiscal and debt management, which has resulted in the country regaining its investment grade rating.
But the bank added that further reforms were needed to increase participation in capital markets and other parts of the non-banking financial sector.
Specifically, the Financial Market Development and Integration Program is aiming to secure an increase in non-bank financial sub-sector assets to 65% of gross domestic product by 2014, and to increase the level of domestic ownership of tradable government securities to 73% by the end of the year.
