Indonesia: COVID-19 Active Response and Expenditure Support Program

OBJECTIVE

The Program’s objective is to mitigate the adverse impacts of COVID-19 on the health of the Indonesian population as well as on the country’s overall economy by providing budgetary support. The Program aims to enable the GoI to provide urgently needed social expenditures and expand its social assistance programs for the poor and vulnerable to reduce the adverse social and economic impacts of COVID-19.

DESCRIPTION

This Program is proposed to be supported under the COVID-19 Crisis Recovery Facility (the Facility) of the Bank and co-financed with the Asian Development Bank (ADB) as a policy-based loan under ADB’s Countercyclical Support Facility COVID-19 Pandemic Response Option (CPRO).

The COVID-19 pandemic is expected to bring extensive adverse impacts to the Indonesian economy, health and social system, including steep decline in the projected economic growth (from 5.2 percent to 2.3 percent), doubling of unemployment rate (from 5.3 percent in 2019 to 10.5 percent in 2020), increase of the national poverty rate (from 9.4 percent in March 2019 up to 12.8 percent in 2020) and substantial widening of 2020 budget deficit (from the expected 1.8 percent to 5.1 percent of GDP). In response, the Government of Indonesia (GoI) has formulated a strong pro-poor countercyclical expenditure plans, with estimated total value of USD 32.4 billion, that will fund substantial increase in public health measures, social assistances to the poor and vulnerable, and supports to businesses especially micro, small and medium-sized enterprises (MSMEs). This includes the national recovery program, which will target real and finance sectors amounting to USD8.9 billion. A key component of the fiscal measures is to support enterprises especially affected micro, small and medium-sized enterprises (MSMEs). Further, the GoI has also expanded its support for poor and vulnerable households through its flagship social assistance and social protection programs, amounting to USD6.4 billion, including: (i) Family Hope Program (PKH), a conditional cash transfer program, to ensure access to maternal health care for women and school for children and (ii) Kartu Sembako program, a food assistance program that provides basic commodities to mothers.

The Program will provide the critically needed support to this comprehensive response programs of GoI. Consistent with AIIB’s purpose, the Program would promote social protection and economic resilience to prevent long-term damage to the productive capacity, including human capital, of the Indonesian economy. Lastly, the Program is central in enabling GoI to pursue the path towards recovery of the Indonesian economy as forecasted by the international community including the IMF and ADB.

ENVIRONMENTAL AND SOCIAL INFORMATION

ADB has categorized this program under its Safeguards Policy Statement (SPS) as Category C for environment, involuntary resettlement and Indigenous Peoples.

AIIB’s ESP was designed to apply to investment projects and has no provisions for its application to policy-based lending operations. Accordingly, the proposed Program, which is co-financed with the ADB as lead cofinancier, has been prepared in accordance with the provisions of ADB’s SPS applicable to policy-based lending as permitted by AIIB’s Board of Directors’ Decisions to Support the AIIB COVID-19 Crisis Recovery Facility. This will ensure a harmonized approach to addressing the environmental and social (ES) risks and impacts of the program.

Under its SPS, ADB has categorized the Program as Category C for environment, involuntary resettlement, and Indigenous Peoples on the basis of an assessment of the countercyclical expenditures to be supported by the Program. These focus on expanding and strengthening social safety nets for the most vulnerable groups and are not expected to have any adverse environmental or social impacts. The proposed Program has also been categorized by ADB as “effective gender mainstreaming at entry”, as it strengthens the government’s response to the COVID-19 outbreak by addressing gender and social inclusion needs. ES monitoring will be conducted based on guidelines and check lists determined by ADB.