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

The Three Roles of IFC

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

• Building the private sector: IFC claims that its particular role in development is to create healthy private sectors in developing countries. Without markets that attract foreign capital, expertise, and technology, IFC believes that developing countries will fall behind in the globalization process.

• The demonstrable effect: IFC's operations are intended to show the private sector that investing in developing countries can be profitable, despite the many perceived and real risks involved. Thus, IFC lends without government guarantees. This means that it stands to lose its own capital if one of its projects fails. By maintaining a profit-making portfolio, which it has since its inception, IFC works to assure the market that investing in development can create real returns, thus promoting economic growth.

• Additionality: as a public institution, IFC says that it must not interfere with the market by operating where the private sector could operate alone. Thus it works to ensure that its operations complement the market, instead of displacing it.

IFC Operations

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

• Loans: the IFC makes loans to businesses, which are called "project sponsors", to implement development projects. Loans can be made to enormous multinational corporations or to small -scale enterprises which are local, or "indigenous", to a host country. IFC loans, sometimes called "A Loans", are made on regular market terms.

• Equity: Often the IFC will combine loans with equity, meaning that the IFC actually purchases a stake in a project, which it eventually sells off. The IFC also purchases "quasi-equity" in projects – loans that the sponsor pays back to the IFC only after it has paid its other debts. This is called quasi-equity because of the unusual length of the pay-back period.

• Syndications: the IFC mobilizes additional capital from other sources for development projects, called syndication or "B Loans". Syndications are pools of money that several investors contribute to, thereby reducing the risk of any one investor in the pool. IFC becomes the "lender of record" for syndications, though it does not guarantee the other investors' returns.

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

SECTOR	%
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

SECTOR	%
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 www.ifc.org and Bank Information Center www.bicusa.org