World Bank agrees $2b loan for Indonesia

17-May-2012 Intellasia | AFP | 7:01 AM Print This Post

The World Bank on Tuesday announced it was ready to provide Indonesia with a $2 billion loan, a backstop against a potential debt crisis in one of Asia’s fastest growing economies.

The World Bank said the loan, requested by the Indonesian government, would be held as a contingency against “possible future shocks and volatility.”

While Indonesia has long seen growth rates that would be the envy of the United States or European nations, the economy has slowed recently thanks to a drop in export demand.

Jakarta and the World Bank will hope the loan sends a message to markets that Indonesia has the firepower to withstand moderate shocks, as it moves to carry out economic reforms.

In this photograph taken on Januar 22, 2012, a house maid cleans an apartment window in Jakarta while a construction site for high rise commercial and residential buildings are seen in the background. (Getty)

Though Indonesia currently enjoys better terms of borrowing than some indebted European nations, its budget remains vulnerable to external shocks.

Any deepening of the crisis is the eurozone or a slowdown in China or the United States would hit the Indonesian economy hard.

Exports account for around 26 percent of gross domestic product.

But for now, the country appears to be weathering the storm.

According to the Bank of Indonesia, the country will pay an interest rate of 3.85 percent on 10 year bonds, more than Greece pays for three month bonds.

GDP expanded 6.3 percent year-on-year in the first quarter.

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Category: Indonesia

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