Cheap $1.5bn loan critical for Jakarta

The Indonesian government has welcomed a $1.5bn loan from Australia as critical to help underpin its economy.

Indonesian Finance Minister Sri Mulyani Indrawati. Picture: Gary Ramage

The Indonesian government has welcomed a $1.5bn loan from Australia as critical to help underpin the “safety and sustainability” of Southeast Asia’s largest economy, which has been battered by the coronavirus.

Finance Minister Sri Mulyani Indrawati expressed gratitude during an online meeting with Josh Frydenberg in which they signed an agreement for the low-interest loan, repayable over 15 years. Indonesia this month ­officially entered its first ­recession since the 1997 Asian ­Financial Crisis after it posted a second consecutive quarter of economic contraction. Its economy shrank 3.49 per cent on an annual basis in the three months to September, though rebounded 5.05 per cent on the previous quarter.

The loan — flagged by The Australian earlier this week — comes amid concerns that Indonesia’s COVID-19 crisis could ­escalate into a financial one, ­potentially destabilising a critical near-neighbour with whom Australia has spent years establishing effective partnerships against terrorism, people-smuggling, and transnational and cyber crime.

Sri Mulyani, a former World Bank managing director, said ­Indonesia appreciated all the help it could get at a time when its fiscal position was “under huge pressure”, and the “$1.5bn loan to Indonesia is the kind of support we really highly appreciate”.

“It’s providing us with the room to manoeuvre, as well as ­diversifying our risk, so we are able not only to cope with COVID-19, helping people, helping business communities, small and medium enterprises, but most importantly also maintaining the safety and sustainability of our fiscal stand,” she said.

“The friendship and partnership with Australia is very, very encouraging … because I know many finance ministers are facing this situation and we just need to share our ­experience so we feel that we are not alone.

“This kind of partnership not only underlines the relationship between Australia and Indonesia, which is very strong, but also the understanding as a neighbouring country that we both have a ­mutual objective of recovering and strengthening because we cannot recover alone with this COVID pandemic.”

Australia’s contribution follows a $1.37bn loan from Chinese government-backed Asian Infrastructure Invest­ment Bank in June, and a $660m loan from Japan.

Mr Frydenberg said the pandemic had only underlined the importance of Australia’s strong relationship with Indonesia, and the loan reflected the “extraordinary times which we must all face together” as well as a recognition of Jakarta’s sound fiscal management. “This relationship is more than just our trade and economic ties, which are significant. It is the people-to-people links and the true friendship that underpins our collaboration. We are confronting this crisis as partners and because of this we will recover ­together,” Mr Frydenberg said.