The World Bank has given a green light to two major investment initiatives totalling $2.128 billion aimed at creating jobs, stimulating economic growth, and enhancing access to clean energy throughout Indonesia. These investments mark the first projects endorsed in line with the Indonesian Government’s ambitious target of achieving high-income status by 2045.
The first initiative is a $1.5 billion policy reform programme known as the Indonesia Productive and Sustainable Investment Development Policy Loan. It is designed to strengthen the country’s financial sector. It will promote the expansion of digital financial services, address credit infrastructure challenges, develop capital markets, and incorporate climate and natural disaster risk considerations. Additionally, it seeks to ease the procurement of renewable energy technologies by lowering local content requirements, align industrial estate policies with international environmental and climate standards, and introduce land value capture mechanisms to attract private capital for infrastructure projects.
Alongside these reforms, the Sustainable Least-Cost Electrification-2 (ISLE-2) programme will extend energy access to 3.5 million people and support the generation of 540 megawatts of solar and wind power, primarily in the Kalimantan and Sumatra regions. This initiative is expected to cut power generation costs by at least 8 percent and reduce greenhouse gas emissions by 10 percent. The financing package for ISLE-2 includes a $600 million IBRD loan, $12 million in grants from the IBRD Surplus-Funded Livable Planet Fund, and US$16 million in grants from partners under the Sustainable Renewables Risk Mitigation Initiative (SRMI), including contributions from the United Kingdom and the Green Climate Fund. Notably, this project is the first to utilise the World Bank’s step-up loan product, offering Indonesia favourable interest rates for nine years with incentives to attract private investment over time.
Manuela V. Ferro, World Bank Vice President for East Asia and the Pacific, stated, “The reforms and investments we are supporting with this blended finance package of over US$2 billion will help implement key government priorities and advance the Bank’s own goals to create jobs and advance energy access in one of the largest and most dynamic economies.” She added, “Through blended finance instruments, the World Bank and partners will also help mobilise an additional US$345 million in private investments to finance solar and wind projects, as part of a World Bank Regional Energy programme to create national and regional resilient and interconnected energy grids.”
Indonesia has maintained robust economic growth and prudent fiscal management even amid the COVID-19 pandemic and global economic slowdowns. The new government’s focus on investing in human capital, ensuring universal electricity access, and reforming the financial sector is being supported by the World Bank through both expertise and funding. The government is also setting up a deregulation committee to unlock innovative financing methods to attract private capital at scale.
Carolyn Turk, Division Director for Indonesia and Timor-Leste, remarked, “With over 3.5 million people gaining access to electricity, the operation is projected to catalyse improved livelihoods and creation of more and better jobs—including through electrification of female-headed enterprises.” This highlights the social impact expected from the ISLE-2 project as the World Bank continues to back Indonesia’s goal of universal electricity access in a cost-effective manner.
