Country Intervention Framework 2013 - 2015 - Indonesia AFD

CIF 2013-2015

Indonesia COUNTRY INTERVENTION FRAMEWORK 2013-2015

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CIF 2013 -2015

La stratégie de l’AFD en Indonésie 2013-2015

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Key components for AFD’s 2013-2015 strategy in Indonesia

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Assessment of AFD’s activity in Indonesia: A structural “climate” positioning 7

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AFD’s strategy in Indonesia for 2013-2015 9

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Figure 1: AFD commitment approvals in Indonesia (EUR M) Figure 2: CIF Indonesia: Logical Framework Figure 3: AFD in Indonesia 2013-2015 (commitment forecasts in EUR M)

Extended mandate based on four areas which are priorities for the Indonesian Government Provide low-carbon solutions for the country’s energy needs Mitigate the environmental footprint of cities Support the sustainable management of forest resources Support the development of the “blue economy” Means and methods for operations Monitoring indicators for the strategy

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Summary

An emerging country seeking sustainable and inclusive development Indonesia: A strategic partner for France

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Key components for AFD’s 2013-2015 strategy in Indonesia

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CIF 2013 -2015

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La stratégie de l’AFD en Indonésie 2013-2015

Key components for AFD’s 2013-2015 strategy in Indonesia

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An emerging country seeking sustainable and inclusive development

The largest archipelago in the world. With over 17,000 islands, Indonesia is the largest archipelago in the world.

Its population is estimated at 247 million inhabitants, making it the 4th most populated country in the world and the largest predominantly Muslim country (in terms of the number of believers). It is also the 3 rd largest democracy in terms of population, with the holding of the presidential elections in 2014 by popular vote confirming the continuity of the democratic transition process initiated in the 1990s.

5e largest GDP in Asia. With a GDP of over USD 860bn, Indonesia ranks 5th among Asian countries in terms of wealth creation.1 The country mainly derives its wealth from vast natural resources of crude oil, natural gas, timber, coal, pewter, copper and gold. Indonesia is also one of the only oil countries to have “sown” the income from its oil to finance a policy to support agriculture and industrial projects. Consequently, the country today benefits from a diversified productive structure,2 although over the past 10 years few investments have been made in the industrial processing sector, excluding mining. The main industries are oil and natural gas, textiles and clothing, as well as mining. The main agricultural products are palm oil, rice, tea, coffee, spices and rubber. Rice production makes the country self-sufficient.

Highest growth rate among the ASEAN-6. Since 2010, Indonesia has recorded a growth rate very often above 6%, which has made it the leading ASEAN-63 country and the 2nd G20 country after China. Indonesia’s growth is

mainly fuelled by domestic consumption and investment, boosted by both budgetary and countercyclical monetary measures, and has shown strong resilience: after having been limited to 4.5% in the midst of the financial crisis, it indeed returned to high levels back in 2010, and this despite several external shocks (tsunami, heavy rains, volcanic eruptions). Analyses today all converge to underscore Indonesia’s growth potential in the coming years, underpinned by the strong demand for the country’s raw materials (agricultural, energy and mining), although there is quite a high level of uncertainty over the prospects for steady growth due to commodity price volatility. This potential stems from the increasing appetite of a middle class, which rises by 7 million people a year, and from the archipelago’s strategic geographical situation, at the crossroads of Southeast Asian and Oceanian countries. However, the middle-income trap in which the country finds itself, one of the causes being the lack of training, raises doubts as to whether there will be a steady growth of the middle class (which also has to be defined).

A new El Dorado for investors? This growth potential, combined with a continuous improvement in Indonesia’s sovereign risk, contrasts with the situation in the developed world in general, as well as with the more muted, or even pessimistic, forecasts concerning some other “emerging” Asian countries. The appreciation of the rupiah, the replenishment of reserves, the reduction in debt ratios (approximately 25% of GDP) and public deficits (less than 3% of GDP) testify to a sound financial situation, which has been welcomed by the rating agencies and

1. IMF – World Economic Outlook, April 2014.

2. Industry accounts for 48% of GDP and 13% of workers, while services represent 37% of GDP and 49% of workers. The primary sector only accounts for 15% of GDP, but still employs 38% of the working population.

3. The first six countries to join the Association of Southeast Asian Nations were Indonesia, Malaysia, the Philippines, Singapore and Thailand, followed by Brunei.

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1 foreign investors,4 and this despite the risks of overheating5 and the country’s vulnerability to sudden capital outflows.6 Consequently, despite a lower level of international integration than its neighbours,7 in just a few years, Indonesia has become a primary destination for foreign direct investments (FDIs). FDIs have recently reached record levels for the country and are attracted by both the salaries, which still remain low, and by the development of a middle class.

A developing country. This strong growth must not mask the fact that Indonesia continues to be a country with huge development challenges. Poverty levels remain high – a sign of insufficiently inclusive growth – under the combined effect of the stagnation of low wages, the increase in oil and rice prices, and an extremely rapid population growth.8 Indonesia’s GDP per capita is lower than USD 4,000, placing the archipelago in around the 110th position out of 184 countries, and over half of Indonesians still live on less than USD 2 a day.9 The country’s ranking in the Human Development Index is behind the Philippines, Egypt and Botswana. As with the other Asian countries going through extremely rapid urbanisation processes, Indonesia is experiencing the development of sprawling slums,10 in which some 26% of Indonesians live,11 often without access to basic sanitary services. The unemployment rate is close to 6% of the working population, which poses a real challenge, while the under-15s account for almost 30% of the population. In this respect, Indonesia receives a considerable amount of assistance. It benefits from support from all the bilateral and multilateral donors, who operate either via grants, or concessional loans combined with technical assistance actions. The World Bank, Japan International Cooperation Agency (JICA) and Asian Development Bank (AsDB) are by far the three most active donors in the country. Up until the end of the 2000s, the sectors of intervention were varied and aid was mainly based on budget support. The Indonesian Government’s

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new strategic orientations from 2009 onwards encouraged donors to strengthen their actions in the field of the fight against climate change, as well as to support inclusive growth (in favour of communities and against poverty), and to increasingly operate in the form of project financing.

Potential hindered by an excessively low investment rate and the slow pace of reforms. Following the crisis in 1998, austerity obliged the State to cut down on its expenditure and reduce investment in infrastructure from 7% to 3% of GDP between 1997 and 2007. This underinvestment led to a deterioration in Indonesia’s infrastructures, both in terms of quantity and quality, and its stock is far behind that of OECD countries and countries with the same level in Southeast Asia in transportation, electricity and water sectors alike.12 For example, in 2008, only 52% of Indonesians had access to improved sanitation facilities, against an average of 83% in Malaysia, Thailand, the Philippines and Vietnam. In these countries, per capita electricity consumption stood at approximately 1,759 kWh, against only 566 kWh in Indonesia. Finally, 55.4% of Indonesia’s roads were surfaced, against an average of 79.8% in these neighbouring countries.13 Faced with these huge needs, which hamper investment and growth,14 in 2011, the Government published a Master Plan which provides for USD 468bn of investments for 2011-2015, including 45% earmarked for infrastructure and a fifth financed by the State. The Indonesian Government is also seeking to attract foreign direct investments and is placing a lot of hope in public-private partnerships.

However, infrastructure development is hindered by regulatory barriers and bureaucracy, which slow down the adoption of certain essential measures: revision of labour legislation, purchase of and access to land, clarification of the regulatory framework for the implementation of public-private partnerships… Finally, corruption is a major obstacle to the development and attractiveness of the country: it is ranked 114th out of 177 countries according to the 2013 Corruption

Indonesia’s last bond issues gave rise to subscriptions up to five times higher than expectations.

Inflation is around 5/6%, with the Government giving clear preference to the objective of keeping the money supply under control.

Non-residents hold 28% of the country’s public debt, and 32% of the external debt is held by foreign investors.

Indonesia’s relatively low openness rate (48%) largely accounts for the economy’s resilience to the international crisis.

According to the 2010 census, annual population growth stood at 1.49% between 2000 and 2010, meaning it was much higher than over the ten previous years (1.4%) and higher than the projections made after the census in 2000, which stood at 1.2%.

9. CIA – World Factbook, March 2012 and World Bank Database.

10. Jakarta (and its suburbs) is the largest city in Southeast Asia due to its 18 million inhabitants. It is estimated that it alone has 5 million slum dwellers.

11. UN-Habitat – 2010 report.

12. The only exception is the telecommunications sector, which has benefited from significant regulatory reforms.

13. OECD Economic Surveys, Indonesia 2010 – Tackling the Infrastructure Challenge in Indonesia.

14. The perceptions surveys of companies classify infrastructure needs as the main barrier to investment.

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La stratégie de2013-2015 l’AFD en Indonésie Key components for AFD’s strategy in2013-2015 Indonesia

Perceptions Index of the NGO Transparency International and is rated as one of the last Asian countries in the World Bank’s Doing Business report.

World’s 2nd largest biodiversity zone and 12th largest greenhouse gas emitter.15 With its 50,000 km of tropical coastal seas and 52% of its surface area covered with forests, Indonesia is often considered as the world’s 2nd largest biodiversity-rich zone after Brazil. But this biodiversity is largely threatened by human activity and the archipelago is considered as one of the world’s 11 biodiversity hotspots, for which less than 10% of the original area remains. At sea, poor fishing practices (overfishing, cyanide fishing and blast fishing) lead to the destruction

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of coral reefs and the depletion of fisheries resources.

On land, there is a rapid disappearance of natural habitats (forests, peatlands, mangroves) due to the extension of human activities (logging, industrial plantations, agricultural crops). Deforestation in Indonesia is a major challenge for the country, as well as for the whole world: almost 40% of the population depends on forests16 (30 million Indonesians directly derive their livelihoods from them),17 and deforestation causes 80% of the country’s greenhouse gas emissions, ranking it in the top 15 of the most emitting countries (12th position). In this respect in particular, and in line with France’s ambitious positions to protect biodiversity and combat climate change, Indonesia is a strategic partner for France.

Indonesia: A strategic partner for France

A “strategic partnership”. From a political perspective, France wishes to strengthen ties with Indonesia. The visit to Indonesia by the French Prime Minister, François Fillon, in July 2011 formalised the strengthening of bilateral relations with the signing of a Franco-Indonesian strategic partnership.

It is based on the consolidation of bilateral cooperation in the political and security, economic, development, education and culture fields, as well as on the expansion of exchanges between civil societies. Indonesia is the 1st Asian country with which France has signed this type of agreement.

Economic partnership to be developed. Despite its considerable economic potential, Indonesia continues to be a minor trading partner for France (volume of trade of EUR 3bn, market share in the region of 2%) and only receives a low level of French foreign direct investments (despite the fact that their recent increase has placed France in the top 10 countries that invest the most in the country).

Key actor in the international climate and biodiversity negotiations. Indonesia’s development path does not only have an impact on Indonesians or neighbouring countries, but on the entire world. Although Indonesia is not subject to an obligation to reduce its greenhouse gas emissions under the Kyoto Protocol, it has decided to reduce its emissions, in a voluntary manner, by 26% by 2020 and by up to 41% if the international community supports its efforts. Consequently, the international community wished to support Indonesia through its “green transition”. In this context, and as is the case with the other donor countries, France wishes to strengthen its partnership with Indonesia and make it a core component of its diplomacy within the framework of the main international negotiations on climate change and biodiversity.

15. Taking emissions linked to deforestation and change of land use into account: http://unfccc.int/resource/docs/2014/sbi/eng/20.pdf and http://unfccc.int/resource/docs/2005/sbi/eng/18a02.pdf.

16. Mark Poffenberger, People in the Forest: Community Forestry Experiences from Southeast Asia, International Journal of Environment and Sustainable Development,, vol. 5, no 1, 2006.

17. Ministry of Finance, 2000 and Global Forest Watch – The State of the Forest, Indonesia, 2002.

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CIF 2013 -2015

AFD COMMITMENT APPROVALS IN INDONESIA (EUR M)

La stratégie de l’AFD en Indonésie 2013-2015

Assessment of AFD’s activity in Indonesia: A structural “climate” positioning

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Assessment of AFD’s activity in Indonesia: A structural “climate” positioning

From post-tsunami to global public goods. Following the opening of a representation office in 2005, in the context of the “post-tsunami” mandate entrusted to it, AFD opened an agency in Jakarta in mid-2007. Thanks to the first flagship loans for the climate and biodiversity, Indonesia rapidly emerged as the most emblematic country for AFD’s strategy in emerging Asian countries, which focuses on the preservation of global public goods, climate change and biodiversity.

CCPL: A pioneer project. Back in 2008, AFD cofinanced with the Japan International Cooperation Agency – JICA – (2008-2011), World Bank (2010) and Asian Development Bank – AsDB – (2011) the Climate Change Programme Loans (CCPL),18 a priority programme for the Indonesian Government which contributes to fulfilling its ambitious and voluntary commitment to reduce its greenhouse gas emissions. Thanks to these successive “climate loans” AFD has positioned itself at the heart of discussions on the Indonesian Government’s public policies aiming to mitigate emissions. The participation in the CCPL has also allowed French expertise to be promoted in the forestry sector by making a technical assistant from CIRAD available to the Ministry of National Development Planning.

“Climate” projects in the energy sector. In addition to the CCPL financing, AFD has also positioned itself alongside the Asian Development Bank for projects aiming to fight against climate change in the energy sector via two loans allocated to the Indonesian State: u A USD 50m loan for the renovation of the Java-Bali power distribution grid; u A USD 50m loan for the construction of a transmission line to transport hydropower generated in Malaysia to the West of Kalimantan.

At the same time, AFD has developed a non-sovereign activity in order to contribute to the effective implementation

of public policies defined in the context of the CCPL. This strategy has been materialised by supporting the Indonesian public bank Mandiri, the country’s leading bank, for the implementation of two credit lines (each for USD 100m) earmarked for private projects labelled “climate change” (renewable energy, hydropower, biomass…).

From “climate” to “green growth”. AFD’s mandate in Indonesia has been gradually extended and since 2011 includes all actions aiming to promote green and inclusive growth, i.e. growth paying attention to environmental balances and being careful to reduce social inequalities.

While the “climate” theme still continues to predominate in its project portfolio, AFD has consequently also started working on the key subjects of biodiversity protection and sustainable urban development. It involves subjects on which AFD can rely on French expertise: u A project for the satellite monitoring of marine biodiversity (EUR 26m), which benefited from the expertise of the French company CLS-Argos, following a bid invitation; u A cofinancing operation with the French Treasury and Economic Policy Directorate General (Emerging Countries Reserve) for an urban transport programme in Bandung (EUR 46m allocated by AFD), to which several French companies contributed; u A project to improve the electricity supply in the City of Jakarta, for which the implementation was entrusted to the leading French operator Alstom, following an Indonesian bid invitation process.

Fruitful synergies with the other development partners.

In addition to its cofinancing with the Asian Development Bank in the energy sector, in May 2011, AFD signed a partnership with the UK’s Department for International Development (DFID), which resulted in DFID making two grant amounts available to AFD (EUR 6.2m in 2011 and EUR 15m in 2013) to finance the preparation of or support for low-carbon public or private projects.

18. The CCPL aims to promote the public policy developments required to contribute to the fight against climate change (mitigation and adaptation), and is combined with continuous supervision-evaluation activities, as well as targeted technical assistance. The programme indicators are grouped together in a policy matrix, which is periodically monitored by a steering committee and revised, if necessary, between the Government and programme donors.

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La stratégie l’AFD enprofondes Indonésieet2013-2015 Desdemutations multiples

AFD’s strategy in Indonesia for 2013-2015

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AFD’s strategy in Indonesia for 2013-2015

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CIF 2013 -2015

Extended mandate based on four areas which are priorities for the Indonesian Government

CIF INDONESIA: LOGICAL FRAMEWORK

AFD’s strategy in Indonesia for 2013-2015

In line with the latest documents which provide a framework for AFD’s operations in Asia, AFD’s strategy in Indonesia for 2013-2015 remains “closely linked to the issues of climate change and sustainable development” (Strategic Orientation Plan – POS3). It aims to “arrive at a development model that is less emissive, saves natural resources and has a concern for protecting populations from the impacts of climate change”. Finally, it makes efforts to “propose France’s experience and vision faced with the challenges [of Indonesia]” (2013-2016 Regional Intervention Framework for Asia).

In view of these orientations, the major challenges facing Indonesia today, as well as the Indonesian Government’s priorities, AFD has defined two structural targets for its action: u Contribute to Indonesia’s efforts to combat climate change. This involves, by developing appropriate infrastructure and implementing dedicated financial instruments, supporting Indonesia in its transition towards a less emissive development model and with a concern for protecting its population against the impacts of climate change. Consequently, AFD’s position is firmly to support Indonesia’s proactive decision to reduce its emissions by 26% by 2020 and by up to 41% depending on the scale of international aid. Its action will meet the priorities defined in the context of the National Action Plan to Reduce Greenhouse Gas Emissions (RANGRK), which was approved

by Presidential Decree in late 2011 and implemented at decentralised levels from 2012 onwards (RADGRK), and the Indonesian Government’s “adaptation” strategy. By doing so, AFD is meeting a priority in contributing to the fight against climate change. This is a subject for which France has made strong commitments and aims to give visibility to the interest of its bilateral action; u Support economic development that respects the natural capital. Indonesia’s growth and development potential is closely linked to the scale of is natural capital.

The Indonesian Government is well aware of the need to reconcile development and environment, growth and the preservation of the natural capital. Consequently, the second Medium-Term Development Plan for 2010-2014 is based on a strategy with four components: “pro-poor, pro-employment, pro-growth and pro-environment”.

AFD has set four operational objectives in order to contribute to these targets.

3.1.1 Provide low-carbon solutions for

the country’s energy needs Energy is one of the 11 national priorities defined in the second Medium-Term Development Plan for 2010-2014.

AFD has recognised experience in this sector in Indonesia, where the needs are so great that there are a multitude of projects, including profitable projects which can be financed

with loans. The development of renewable energies (hydro and geothermal energy in particular) will be the main focus for AFD’s operations in Indonesia in terms of amounts, as it should account for some 50% of the amounts committed over the next three years.

3.1.2 Mitigate the environmental footprint

of cities Today, about one in two Indonesians lives in a city and it is estimated that by 2030, 70% of Indonesia’s population will be urban dwellers. In the context of the decentralisation process, initiated in the early 2000s, Indonesia’s cities, which are overcrowded and still growing, are faced with new responsibilities in terms of urban planning, job creation, housing, waste management, energy supply, infrastructure and other public services aiming to mitigate urban poverty and the deterioration of the urban environment. In view of the scale of the challenges, the Ministry of National Development Planning has, for the first time, submitted urban development projects to donors. In the context of its mandate for operations in Indonesia, AFD will work on projects that limit the environmental footprint of cities, by making them less emissive (public transport, water and electricity networks, energy efficiency in buildings) and less polluting (waste management, drainage, sanitation, ecoports). In doing so, it will contribute to promoting more integrative approaches to urban planning and to implementing the National Action Plan to Reduce Greenhouse Gas Emissions (RANGRK) in Indonesia’s provinces and municipalities.

3.1.3 Support the sustainable management of

forest resources Given the massive impact that deforestation has on the country’s greenhouse gas emissions (between 70 and 80% of emissions), the preservation of forests is central to the Indonesian Government’s “climate” concerns. In line with Indonesia’s “pro-growth” and “pro-environment” development strategy, AFD will seek to finance innovative and demonstrative projects, reconciling the exploitation and preservation of the forestry capital. It will involve supporting public or private initiatives for the sustainable exploitation of natural forests and more especially the development of sustainable plantations, by directly financing projects and by setting up specific credit lines to State-owned banks so as to finance a portfolio of such projects. AFD will also pursue its cooperation with the Ministry of National Development Planning, Ministry of Finance and Ministry of Environment and Forestry in order to contribute to operationalising the Forest Management Units (KPHs), whose development lies at the heart of the Government’s governance policy for the Forestry sector. AFD will also seek to develop its relationships with the main State-owned companies in the sector. The projects financed will also feed into France’s Indonesia

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3 discourse and foster its positions on forestry management in Indonesia and worldwide.

3.1.4 Support the development of the

“blue economy” For an archipelago like Indonesia, which has an immense exclusive economic zone19 (a 7th of the world in surface area) of 5.8 million km2, as well as 81,000 km of maritime borders, the sea holds considerable potential. Indeed, the archipelago has marine resources on which a large part of the population is dependent: there are some 6 million fishermen and fish farmers in Indonesia today,20 and in 2007, it was estimated that 15 to 20% of the country’s population was dependent on the fisheries sector. Indonesia is the 4th largest fish producer in the world and a giant in the fishing industry, with the sector accounting for some 2.5% of GDP. In this context, illegal and unsustainable fishing practices, the overexploitation of stocks in a number of zones, as well as sea pollution, are major challenges

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for the Indonesian Government, which has consequently adopted the notion of the “blue economy”.21 In view of the close relations it has developed with the Ministry of Maritime Affairs and Fisheries in the context of the INDESO project (see above), AFD will, over the next three years, consequently seek to participate in the rational exploitation of the country’s marine resources (seaweed farming, fishing, aquaculture, ocean energy). AFD will also invest in the development of ecoports.22 It will involve developing and securing the export industry of Indonesia’s fisheries sector, while financing port infrastructure and activities that are part of a High Environmental Quality approach (rationalised energy management, waste recycling, biodiversity restoration via ecological corridors, sustainable management of polluted sediments, reduction of nuisances and pollution…). By doing so, AFD will also be supporting the Indonesian Government’s efforts to strengthen the connectivity between the 17,000 islands which make up the archipelago.

Means and methods for operations

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AFD IN INDONESIA 2013-2015 (COMMITMENT FORECASTS IN EUR M)

Credit lines Direct loans to State-owned companies Concessional sovereign loans

19. Maritime area over which a coastal State exercises sovereign rights in terms of exploration and the use of resources.

20. FAO – State of World Fisheries, 2012.

21. Notion used by the delegate of the Fiji Islands during the 2nd United Nations preparatory meeting for the Rio +20 conference.

22. Term which originally designated European ports that voluntarily adhered to “good practices” in terms of sustainable development, in the context of a project dating back to 1999, supported by the EcoPorts Foundation (EPF).

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CIF 2013 -2015

AFD’s strategy in Indonesia for 2013-2015

Some EUR 250m a year. AFD plans to commit some EUR 250m a year for 2013-2015. The activity will mainly be driven by non-sovereign financing (direct loans to Stateowned companies and “green” credit lines), as well as by projects in the renewable energies sector, which are expected to account for some 50% of allocations.

Maintain a sovereign activity in order to support Indonesia’s agenda. In view of the four areas for operations defined by AFD, the actions conducted in Indonesia will meet the Indonesian Government’s agendas for both the “Climate” (COP21) and “Growth”. Consequently, the projects financed in the energy sector (energy efficiency and renewable energies) will contribute not only to mitigating the country’s greenhouse gas emissions, but also to strengthening its energy security and its resilience to external shocks. By doing so, they will contribute to increasing power generation in response to an exponentially increasing demand. Despite a less favourable context for donors to lend to Indonesia, AFD should continue to finance the Indonesian Government’s projects, in order to maintain the dialogue with the latter and particularly the relationship of trust developed with the two main ministries who manage the transfers of Official Development Assistance in Indonesia, i.e. the Ministry of National Development Planning and Ministry of Finance. Maintaining a high-quality dialogue between AFD and the Indonesian authorities will foster the convergence of views on subjects of common interest, such as the climate and biodiversity.

Rely on French expertise in Indonesia. The areas of operation defined meet the express request of the Indonesian authorities to be able to benefit from French expertise and know-how. In this context, AFD will seek to scale up its cofinancing in Indonesia with the French Facility for Global Environment (FFEM). AFD’s strategy for 2013-2015 intersects with two of the themes prioritised by FFEM for the coming years: to promote innovative instruments to finance biodiversity and the integrated management of coastal and marine areas. The financial support via grants which will be combined with this expertise will complete AFD’s overall financing provision. Secondly, urban transport, water and sanitation sector, marine energy… are all sectors in which French companies, particularly engineering companies, benefit from international recognition. This French provision will in particular be mobilised by AFD by using the new Fund for Technical Expertise and Exchange of Experience (FEXTE), which was set up in 2013. Fruitful synergies will also be sought with the Private Sector Study and Support Fund (FASEP). Finally, partnerships involving decentralised

cooperation actors (water agencies, public utilities and more generally local authorities) and French NGOs may be sought depending on the projects and in conjunction with the French Embassy’s relevant departments.

Offer a wide range of tools to meet the needs of the various Indonesian counterparties. AFD will seek to make full use of its wide range of financial tools, starting with nonsovereign financing, by identifying sound non-sovereign counterparties. Financing for local authorities and municipalities could also be explored, provided the Indonesian authorities wish to launch this type of pilot operation.23 The experience acquired by AFD in other geographical areas will be promoted in order to offer a wide range of financial arrangements: credit lines dedicated to municipal investments, urban investment funds, direct financing for local authorities, public-private partnerships. An AFD Group approach will also be proposed by promoting the potential offered to the private sector by PROPARCO. “Green” credit lines: a response tailored to the situation in Indonesia. The Indonesian Government clearly intends to make the financial sector a vehicle for the implementation of its sustainable development policy. Since 2010, Indonesia’s banking sector has consequently been encouraged by the Ministry of the Environment, in partnership with the Central Bank, to increase its financing activity for “green”, renewable energy and energy efficiency projects.

Investors likely to take an interest in low-carbon projects (renewable energies, energy efficiency, the forestry sector) are medium-sized or small (medium-sized enterprises, SMEs, individual entrepreneurs, or cooperatives). Unlike the large conglomerates, which give priority to highly profitable sectors (mining, energy, services, agro-businesses), these investors are not in a position to contract long-term loans from banks or to raise resources on markets. Their access to credit is limited to loans with maturities which rarely exceed 6 years, meaning the duration is too short to finance projects with a deferred return on investment and profitability. In this context, AFD will continue to set up long-term banking credit lines, combined with technical assistance to banks and the investors themselves, in order to remove the barriers to financing low-carbon projects.

Optimise synergies with partners. In view of its positioning on the themes of climate and green growth and its wide range of financial instruments, AFD is a partner able to create leverage effects on certain financing operations.

In this context, it will involve building relationships for sustainable cooperation and operational partnerships with

23. The legislation currently in force does not allow local authorities to borrow from foreign institutions.

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3 Scale up knowledge production to support public policies.

AFD will take measures to step up its role in advising public policies following on from the CCPL. A knowledge production programme has been prepared for this purpose. The production of reference documents from AFD’s publications will be developed in Indonesian.24 In order to differentiate itself from “classical” banks, for AFD it will involve promoting its expertise and its capacity to manage and contribute to research on development.

other donors. Consequently, AFD will seek to conduct joint actions and cofinance operations with the latter (Asian Development Bank, World Bank, DFID, German cooperation – KfW – and Japanese cooperation – JICA). It will seek to develop synergies with actors who have complementary operating methods, such as Australian, U.S. (USAID) and German (GIZ) cooperation. AFD will also seek to promote cofinancing operations with the European Commission via the Asia Investment Facility, in order to strengthen relations with this priority partner.

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Monitoring indicators for the strategy

In terms of the supervision of the results of its strategy for operations in Indonesia, and in addition to the resource indicators (commitments, disbursements), AFD has decided to focus its attention on the indicators below (partly taken from the matrix of indicators for France’s bilateral aid validated in July 2013), which are directly linked to the objectives and activities defined.

On the promotion of renewable energies and energy efficiency: u Renewable or recovered energy financed; u Energy saved; u Investments supported (via credit lines).

On the improvement in public services in urban areas: u Number of passengers taking public transport on the sections financed;

u Number of people gaining sustainable access to an improved sanitation system; u Number of people with an improved quality in the sanitation system.

On the exploitation and development of forestry and marine resources: u Population directly benefiting from projects for sustainable fisheries resource management; u Surface area benefiting from a rational management of natural resources; u Investments supported (via the direct financing of projects and through credit lines in the forestry sector).

On the contribution to Indonesia’s efforts to combat climate change: u Reduction of greenhouse gas emissions (CO2).

24. A first publication was translated and published by AFD in 2012: Who Pays What for Urban Transport?

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Les rĂŠalisations entre 2008 et 2012

Notes

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Notes

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Agence Française de Développement (AFD) 5, rue Roland Barthes - 75598 Paris cedex 12 France Tel.: + 33 1 53 44 31 31 www.afd.fr