The Asian Development Bank (ADB) has passed a $500 million loan to support state-owned enterprise reforms in Indonesia.
The loan will cover the first subprogram of the State Enterprise Reform Programwhich will help Indonesia improve the efficiency and resilience of state-owned enterprises and strengthen their corporate governance.
The program is in line with the government’s comprehensive and ambitious SOE Roadmap (2020-2024), which is introducing sweeping reforms to transform SOEs and ensure they contribute to Indonesia’s goal of becoming a high-income country. income by 2045.
“SOEs can play a critical role in fostering inclusive and sustainable recovery from the COVID-19 pandemic in Indonesia,” said Yurendra Basnett, ADB Senior Public Management Specialist for Southeast Asia.
“But to offer greater value to the public, it is necessary to address its structural weaknesses. The ADB is pleased to support the government’s reforms in public companies.”
The program is supporting the reduction in the number of public enterprises, while requiring them to focus on their core operations so that they are financially viable and effectively deliver essential public services.
It is also supporting measures to improve the quality of public company boards, strengthen financial control and disclosure, and help public companies transition to a climate-compatible business model.
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The German development bank KfW will co-finance with a loan equivalent to 300 million euros (295.8 million dollars).
Indonesia had more than 100 public companies in 2021, with combined assets of $610 billion, equivalent to about 53% of gross domestic product.
They provide a number of public services, such as electricity, pharmaceuticals, air navigation services, food distribution, and logistics.
Public companies are important sources of income for the government through dividends and the payment of taxes. Public enterprises were at the forefront of the response to the COVID-19 pandemic and were a key pillar in the implementation of the Pemulihan Ekonomi Nasional (National Economic Recovery) plan.
Although public companies have been negatively affected by the pandemic, with consolidated net revenues falling 89% between 2019 and 2020, their financial results are improving.
From 2020 to 2021, the return on assets increased from 0.2% to 1.4%, and the return on own funds increased from 0.5% to 4.5%. Sustained implementation of the SOE reforms will be vital to ensure that SOEs support Indonesia’s medium- and long-term development goals.