The World Bank has approved two major investments totaling $2.128 billion to stimulate job creation, economic growth, and clean energy access in Indonesia. These projects are the first to support the Indonesian Government's aim of achieving high-income status by 2045.
A $1.5 billion policy reform program, known as the Indonesia Productive and Sustainable Investment Development Policy Loan, is designed to strengthen Indonesia's financial sector. The program will expand digital financial services, remove credit infrastructure constraints, broaden capital markets, and adjust for climate and natural disaster risks. It also aims to reduce local content requirements for renewable energy technologies, align industrial estate policies with international environmental standards, and implement land value capture mechanisms to attract private investment in infrastructure.
In addition to these reforms, a blended finance program called Sustainable Least-Cost Electrification-2 (ISLE-2) will provide energy access to 3.5 million people and generate 540 MW of solar and wind power. This initiative is expected to lower power generation costs by at least 8% and reduce greenhouse gas emissions by 10% in Kalimantan and Sumatra regions. The financing includes a $600 million IBRD loan, $12 million from the IBRD Surplus-Funded Livable Planet Fund grants, and $16 million from partners under the Sustainable Renewables Risk Mitigation Initiative (SRMI). Among these contributions is a $6 million grant from the United Kingdom via the World Bank’s Energy Sector Management Assistance Program (ESMAP) and $10 million from the Green Climate Fund SRMI-2 program.
The ISLE-2 project is notable for piloting the World Bank's step-up loan product that offers favorable interest rates for nine years with incentives to attract private capital over time. It aligns with the World Bank Group’s Originate to Distribute approach.
Manuela V. Ferro, World Bank Vice President for East Asia and the Pacific stated: “The reforms and investments we are supporting with this blended finance package of over US$2 billion will help implement key government priorities and advance the Bank’s own goals to create jobs and advance energy access in one of the largest and most dynamic economies." She added that through blended finance instruments, an additional $345 million in private investments would be mobilized for solar and wind projects as part of a regional energy program.
Indonesia has experienced robust growth despite global challenges such as COVID-19. The new government's plans include investing in human capital, ensuring electricity access for all Indonesians, implementing financial sector reforms supported by World Bank knowledge and financing initiatives. A deregulation committee is also being established to explore innovative financing approaches for attracting large-scale private capital.
With ISLE-2 Project implementation ongoing, Carolyn Turk, Division Director for Indonesia and Timor-Leste remarked: “With over 3.5 million people gaining access to electricity, the operation is projected to catalyze improved livelihoods and creation of more jobs—including through electrification of female-headed enterprises.”