Indonesia: Competitiveness, Industrial Modernization, and Trade Acceleration Program (CITA)

OBJECTIVE

The Program objective is to support the Government of Indonesia (GoI) to foster a more competitive and investment-friendly business environment in the country and to support an accelerated economic recovery from the coronavirus disease (COVID-19) pandemic.

DESCRIPTION

This proposed Program will provide a policy-based loan under the COVID-19 Crisis Recovery Facility of the Bank and will be co-financed with the Asian Development Bank (ADB).

The pandemic has driven up unemployment and poverty levels in Indonesia. The adverse impact of reduced working hours, lockouts and unemployment caused a reversal of the structural transformation of the economy. The risk of a prolonged recovery from the COVID-19 pandemic could further stall economic development. While domestic consumption has been the main driver of economic growth, it is likely to remain dampened due to the income loss experienced by households. In the post-pandemic context for Indonesia to meet its target of becoming a high-income country by 2045, critical reforms are needed to address productivity, creation of quality jobs, and income growth.

The proposed Program is anchored on GoI’s structural reforms, combining reforms in the investment, trade, and MSMEs (micro, small, and medium-sized enterprises) sectors. The proposed Program will support the following three reform areas:
(i) Reform 1 (creating an enabling environment for investments) - this reform area aims to improve the business climate;
(ii) Reform 2 (easing barriers to trade) - this reform area will reduce impediments to trading, both domestic and cross-border; and (iii) Reform 3 (growing and upscaling enterprises) - this reform area will help firms increase their productivity and upscale operations.

ENVIRONMENTAL AND SOCIAL INFORMATION

The Program will be co-financed with ADB as the lead cofinancier, and the Program’s Environmental and Social (E&S) risks and impacts have been assessed in accordance with ADB’s SPS applicable to PBL. AIIB’s Environmental and Social Policy (ESP) was designed to apply to investment projects and has no provisions for its application to PBL operations. Therefore, as permitted by the decision of the Board of Directors set forth in the Decisions to Support the Facility, AIIB will apply the provisions of ADB’s SPS to this PBL in lieu of the ESP. This will provide for a harmonized approach to addressing the E&S risks and impacts of the Program.

Based on the E&S assessments carried out according to the SPS requirements, no adverse impacts have been identified in respect of involuntary resettlement, Indigenous Peoples or the environment. Therefore, ADB has categorized the Program as Category C for involuntary resettlement, Indigenous Peoples, and environment. An E&S risk assessment on the policy matrix was also undertaken, along with E&S due diligence to confirm no outstanding E&S issues remain and to provide guidance on the E&S aspects for future reforms of state-owned enterprises.