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Down to Earth IFIs Factsheet Series

No 14, August 2001

IFIs in Indonesia

This series of monthly factsheets on International Financial Institutions (IFIs) will include information on the World Bank Group, the International Monetary Fund (IMF) and the Asian Development Bank (ADB), focussing on their involvement in Indonesia.

Part 1 of 2

The International Finance Corporation (IFC):
a World Bank Group arm for the private sector

The International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) are the World Bank Group's private sector arms. While the World Bank (IBRD and IDA) works with governments, the IFC and MIGA work only with businesses, providing them with loans, equity, investment services, technical assistance, and insurance. Founded in 1956, the IFC has worked with nearly 2000 companies in 129 countries. The IFC is significant in that it is one of the fastest growing agencies of the World Bank Group. As direct foreign investment continues to grow in developing countries, the demand for the IFC's (and MIGA's) services has significantly increased. This DTE Factsheet provides introduction to the IFC's operations, portfolio, corporate structure and its operations in Indonesia. The next DTE Factsheet will look at IFC policies, accountability issues, and critiques of the institution's operations and approach.

The Three Roles of IFC

The IFC says that its overarching goal is to improve lives through economic development in three unique ways:

One way that IFC works towards this goal is by emphasizing "syndications" the creation of investment pools from several private sources as a crucial part of its portfolio. In recent years, IFC has extended its operations into riskier countries that most investors are wary to venture into, by providing loans to financial intermediaries to help establish commercial and financial infrastructure in developing countries, such as leasing companies and securities markets.

IFC Operations

The IFC's main operating instruments are loans, equity, and syndications.

The IFC also provides a wide range of services to investors, such as advice on navigating through developing country laws and markets, technical assistance, and consulting on individual projects, for which it charges market-based fees. The IFC also occasionally provides guarantees for projects.

In addition to its official services, the IFC is seen as an "investor's friend" in developing countries because of its affiliation with the World Bank, and thus its close ties and influence over borrowing-country governments.

The World Bank Group also supports the private sector through another arm, the Multilateral Investment Guarantee Agency (MIGA). MIGA provides investment insurance against non-commercial risks in developing countries. MIGA's involvement in a project is seen as a means of enhancing confidence among private and public investors in a project in a developing country where there are political risks.

IFC's Corporate Structure

IFC is based in Washington, DC, though it has field offices throughout the world. While most of its projects are still administered from its Washington headquarters, IFC is aiming at decentralizing its portfolio administration to its field offices. IFC is legally separated from the World Bank and has its own Board of Directors, though its Board members are identical to the Bank's Board. IFC's President, currently James Wolfensohn, is the President of the World Bank Group. IFC has approximately 1,800 staff working in Washington, DC and in 69 field offices.

IFC's Indonesia portfolio is managed under the East Asia and Pacific Department. The Director of the East Asia & Pacific Department is Mr. Javed Hamid. The Regional Representative in Jakarta is Mr. Amitava Banerjee. The addresses are as follows:

International Finance Corporation
2121 Pennsylvania Avenue, N.W.
Washington, DC 20433, USA
Telephone: (1) (202) 473-0400
Fax: (1) (202) 974-4340
International Finance Corporation
Jakarta Stock Exchange Building
Tower 2, 13th Floor
Jl. Jenderal Sudirman Kav. 52-53
Jakarta 12190, Indonesia
Telephone: (62) (21) 5299-3001
Fax:(62)(21) 5299-3002

IFC's Portfolio

The IFC's portfolio is diverse but is concentrated primarily on financial services, infrastructure, and oil, gas and mining development.

IFC Sectoral Distribution of FY 2000 Approval
Total: USD 5.8 billion
Financial Services 45.9
Infrastructure 23.3
Oil, Gas and Mining 11.0
Cement and Construction Material 3.1
Food and Agribusiness 2.9
Social Services (health care, education) 2.8
Manufacturing 2.6
Chemicals and Petrochemicals 2.6
Timber, Pulp, and Paper 2.5
Other 3.3

In 2000 the IFC approved 258 new projects worth USD3.5 billion of its own approved financing, and mobilized USD 2.3 billion from private firms through its syndication programs. While the IFC has had operations in 129 countries, it has been criticized for concentrating a large part of its activities in countries that are less in need of development funds and can attract other private sector lenders, such as Russia and Brazil.

The IFC in Indonesia

Indonesia is the IFC's seventh largest country portfolio. Since Indonesia joined the organization in 1968, IFC has approved financing for 98 projects in Indonesia (as of December 31, 2001), representing a total project costs of USD 8.5 billion. This includes IFC financing of USD 1.44 billion and USD 1.61 billion mobilized through IFC syndicated loans.

IFC's Committed Portfolio in Indonesia (USD 471 million)
as of December 31, 2000
Financial Services 9
Textiles 16
Food and Beverage 14
Information Technology 12
Chemicals 10
Consumer Production 6
Primary Metals 10
Transportation 7
Non-metallic Mineral Production 11
Other 5

IFC investment in Indonesia has been targeted at mining, agriculture, and financial sector projects. There is also A focus on private investments in the telecom, transport, and water sectors. In the financial sector, the IFC is promoting a range of new financial instruments, investment in private commercial banks, and housing finance intermediaries IFC loans to financial institutions which in turn will lend the money to individuals or other institutions.

To give a better picture of IFC operations in Indonesia, the following is a list of projects funded by the IFC in 1997-2000.

IFC Project Approval Indonesia (1997-2000)
(amount in millions of USD)
description IFC loan IFC equity IfC quasi-equity IFC other Syndi-cations Total Project Financing Total Project Amount
Year 2000              
Ciluluk Village a cooperative, received working capital and start-up expenses to support hand-loom activities. .04 0 0 0 0 .04 0
PT Bank NISP, Tbk* plans to expand branch network and business lines, allowing it to respond to economic crisis in Indonesia and better compete in consolidated, post-crisis banking sector. 0 5 0 0 0 5 5
PT Makro Indonesia, a self-service hypermarket chain selling food and non-food products, is expanding its wholesale distribution operations through funds raised in a rights issue. 0 1.33 0 0 0 1.33 42.5
PT Petrosea, a multidisciplinary engineering, construction and mining contractor, will use funds to meet critical needs financing its 2000-2002 capital expenditure program, creating jobs and expanding benefits. 15 1.8 8.2 0 0 25 83
Year 1999              
Indonesia Trade Credit Facility provides export-oriented Indonesian companies with working capital and enhances the likelihood that international banks will enter into trade finance transactions with them. 0 0 0 50 0 50 140
P.T Indorama, export producer of polyester yarns, is using this working capital to continue operating at full capacity. IFC purchased equity on the secondary market to support this economically viable company during the Asian financial crisis. 30 3.5 0 0 0 33.5 33.5
Year 1998              
PT Megaplast Jayacitra will build a plastic injection moulding facility to manufacture videocassette shells for the local market. The project will enable Megaplast to diversify manufacturing capacity, increase production, and compete in the global market. 11.5 2.5 0 0 0 14 56
Year 1997              
PT AdeS Alfindo Putrasetia expands and modernizes water and beverage production facility 24 7     46 77 97.4
PT Alumindo Light Metal Industry will modernize and expand production capacity for hot and cold rolled aluminium sheet and foil. 15 0 0 0 20 35 97.4
PT Bank NISP is financing small and medium enterprises (SMEs). 100 0 0 0 0 10 10
PT Berlian Laju Tanker acquired 10 small product tankers to sail under the Indonesian flag. 22 20 0 0 68 110 120
PT Kalimantan Sanggar Pusaka & Subsidiaries are expanding palm oil and rubber output by investing in plantation, processing, and port storage. 20 15 0 0 15 50 161.5
PT Sayap Mas Utama and PT Wings Surya to upgrade and expand production of soap and detergent facilities in Jakarta and Surabaya. 25 0 0 0 55 80 120.8
*Tbk stands for "terbuka" in Bahasa Indonesia which means that it is a publicly-owned company.
Reference: IFC Annual Reports 1997-2000

This article is mainly summarized from the Bank Information Center's Toolkits for Activists, "The International Finance Corporation and the Multilateral Investment Guarantee Agency" (Issue 4); IFC and Indonesia (by IFC); IFC website.

For further information, visit: IFC website and Bank Information Center

This IFI factsheet is published by Down to Earth, the International Campaign for Ecological Justice in Indonesia.

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