AFD commits to support the strengthening of the Indonesian financial system in the context of Covid-19 crisis

Jakarta, November 26th 2020 – Mr. Luky Alfirman, Director General of Budget of Indonesia and Mr. Emmanuel Baudran, Director of the French Development Agency (AFD) in Indonesia, signed a loan agreement of €100 million as a part of a programmatic Development Policy Loan series in support of a reform program to strengthen the resilience and efficiency of the Indonesian financial system. Co-signed by Mr. Olivier Chambard, Ambassador of France, this financing marks France’s support to Indonesia in the crisis related to the Covid-19 pandemic.

Despite remarkable development progress over the past 20 years, including a reduction in poverty, Indonesia must face the challenges posed by its financial system. It is characterized by limited recourse to the capital market, low financing capacity of the real economy and a lack of stability. 20% of the population is just above the poverty line and is therefore particularly exposed to external shocks. Moreover, household access to formal banking services is still limited and the cost of accessing these services remains high.

The current pandemic context is further undermining this system and the country is already feeling the economic and social effects of the epidemic.

Faced with this challenge, the government has defined a reform plan to support the financial system. These reforms have several objectives: increasing access to financial services, reducing costs for individuals and businesses, but also strengthening the sector’s capacity to withstand external shocks by improving the crisis resolution framework, developing sustainable financial practices and establishing financial mechanisms for managing the risk of natural disasters. This plan is supported by the World Bank and AFD through loans of 300 million and 100 million euros respectively.

With this ambitious program, the government has set itself the goal of halving the barriers to opening a bank account, or increasing the number of service providers using digital payment services such as the QR code by five times by 2022. This program should be accompanied by positive medium-term results in terms of market volatility, economic growth and poverty reduction.

According to Emmanuel Baudran, Director of AFD in Indonesia: "AFD has been working for 10 years with Indonesian public banks and we know the essential role that the financial sector plays in Indonesia’s development. We are proud to accompany, alongside the World Bank, the reforms undertaken by the Indonesian Government to improve the efficiency and resilience to finance the economy and to face external shocks!

AFD also wishes to support the financial sector supervision institutions, the Financial Services Authority (OJK) and Bank of Indonesia (BI) to strengthen sustainable finance in Indonesia.

Diterbitkan pada 25/08/2022

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