US signs agreement granting Indonesia $649M to help build infrastructure, empower women

The United States on Thursday signed a U.S. $649 million, five-year grant for Indonesia to help improve infrastructure, promote economic empowerment for women and transition to clean energy.

The grant from the U.S. government’s Millennium Challenge Corporation (MCC) for the Indonesian government’s Indonesia Infrastructure and Finance Compact was first negotiated by the two countries’ leaders on the sidelines of the G20 meeting in Bali in November.

The partnership between the two countries represents their shared belief in “innovation-driven economic growth,” said U.S. Secretary of the Treasury Janet Yellen, who is vice chairwoman of the MCC, which is an independent U.S. government agency working to reduce global poverty.

“The $649 million compact with Indonesia represents a catalytic use of grant funds to improve infrastructure, increase access to finance, and promote women’s economic empowerment,” Yellen said at the grant signing ceremony at the International Monetary Fund in Washington, according to a statement issued by MCC.

“I am particularly pleased that the compact also supports the Just Energy Transition Partnership with Indonesia. This is a fine example of the partnership between our two countries and a testament to both the United States’ dedication to bold and impactful climate action and Indonesia's admirably high climate ambition,” she said.

The Indonesia Infrastructure and Finance Compact consists of projects in transportation, women owned small- and medium- enterprises and private sector infrastructure.

The compact includes an additional $49 million contribution from the Indonesian government.

The Southeast Asian was “taking crucial action to build a robust financial environment, promoting economic growth that benefits everyone,” said Indonesia’s Finance Minister Sri Mulyani Indrawati, who was present at the grant-signing ceremony in Washington.

“I am excited to see how our joint efforts will continue to strengthen economic security for current and future generations of Indonesians,” she said.

Including the grant signed Thursday, MCC would have worked with Indonesia on projects a total of over $1 billion, said MCC Chief Executive Alice Albright.

“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 market capital,” she said, according to the statement.

Key projects

The U.S. grant seeks to provide access to finance to projects that have employ large numbers of people but have difficulty in attracting funds. It also looks to provide funds to small private sector infrastructure projects.

While Indonesia has shown impressive growth since the 1990s, it existing financial structures often prevent small businesses from accessing the finances they need to grow, the MCC said on its website. Indonesia’s micro-, small- and medium-sized enterprises (MSMEs) employ almost 97 percent of the nation’s workforce and contribute around 57 percent of the total GDP.

Additionally, these financial structures keep the private sector from investing in infrastructure that would facilitate greater movement of goods and services. As the country continues to invest in manufacturing and commodity-based exports, high-quality infrastructure is needed to transport workers and goods.

The transportation project of the Indonesia Infrastructure and Finance Compact will work with five provincial governments – South Sumatra, North Sulawesi, Riau, Riau Islands and Bali. It aims to improve accessibility of transport services for women and disabled passengers.

Another project on women-owned micro- small- and medium-enterprises will provide business training – including digital and financial literacy training – and technical assistance to improve credit worthiness and investment readiness.

And a third project will help the Indonesian government form new partnerships to fund lower-risk, high-quality private infrastructure projects.