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The Sarana Multi Infrastruktur, the state-owned infrastructure financing division of Indonesia, has been successful to secure a loan of $200 million from the Washington-headquartered World Bank and the Beijing-based Asian Infrastructure Investment Bank (AIIB).
With the receipt of this loan, Sarana Multi Infrastruktur will be able to create a fund, dubbed as the Regional Infrastructure Development Fund (RIDF), to facilitate local governments to support the development of large-scale infrastructure projects.
The company, as part of the agreement, will get $100 million from the World Bank and one more $100 million from the AIIB for the planned RIDF.
Sarana Multi Infrastruktur will also receive $200 million from the Government of Indonesia, taking the overall size of the fund to $400 million.
The Indonesian Government has already allocated Rp 2 trillion ($149 million) for Sarana Multi Infrastruktur.
In its website, the AIIB has revealed that the RIDF must be operational by April and run till March 2021.
Issuing a statement on Tuesday, the World Bank's Senior Urban Economist Marcus Lee disclosed, "Currently, there are limited financing instruments available in Indonesia for local-level infrastructure projects."
Local governments generally face limitations due to narrow revenue flows, and are incapable of issuance of complex financing devices such as municipal bonds. They are often forced to assume short-term projects, which are normally finished by 12 months, because of financial restrictions.
Larger projects such as water supply, sanitation, and road and transport system are reliant on the central government funds, priority of which might be different from the regions.
The World Bank's country director for Indonesia Rodrigo Chaves revealed, "Improving service delivery at local levels and greater equality of opportunity are critical to achieving inclusive growth across Indonesia, particularly in less-developed areas."
The World Bank and the AIIB in February agreed to provide a loan of $125 million to repair 140+ dams in Indonesia. The global donor in last July also delivered its help in support of the National Slum Upgrading Project.