Indonesia: COVID-19 Active Response and Expenditure Support Program

approved

This Program is proposed to be supported under the COVID-19 Crisis Recovery Facility (the Facility) of the Bank and co-financed with the Asian Development Bank (ADB) as a policy-based loan under ADB's Countercyclical Support Facility COVID-19 Pandemic Response Option (CPRO). The COVID-19 pandemic is expected to bring extensive adverse impacts to the Indonesian economy, health and social system, including steep decline in the projected economic growth (from 5.2 percent to 2.3 percent), doubling of unemployment rate (from 5.3 percent in 2019 to 10.5 percent in 2020), increase of the national poverty rate (from 9.4 percent in March 2019 up to 12.8 percent in 2020) and substantial widening of 2020 budget deficit (from the expected 1.8 percent to 5.1 percent of GDP). In response, the Government of Indonesia (GoI) has formulated a strong pro-poor countercyclical expenditure plans, with estimated total value of USD 32.4 billion, that will fund substantial increase in public health measures, social assistances to the poor and vulnerable, and supports to businesses especially micro, small and medium-sized enterprises (MSMEs). This includes the national recovery program, which will target real and finance sectors amounting to USD8.9 billion. A key component of the fiscal measures is to support enterprises especially affected micro, small and medium-sized enterprises (MSMEs). Further, the GoI has also expanded its support for poor and vulnerable households through its flagship social assistance and social protection programs, amounting to USD6.4 billion, including: (i) Family Hope Program (PKH), a conditional cash transfer program, to ensure access to maternal health care for women and school for children and (ii) Kartu Sembako program, a food assistance program that provides basic commodities to mothers. The Program will provide the critically needed support to this comprehensive response programs of GoI. Consistent with AIIB's purpose, the Program would promote social protection and economic resilience to prevent long-term damage to the productive capacity, including human capital, of the Indonesian economy. Lastly, the Program is central in enabling GoI to pursue the path towards recovery of the Indonesian economy as forecasted by the international community including the IMF and ADB.