China SWF May Become a Lender for Indonesian Infrastructure

According to an interview by Reuters, Gita Wirjawan, Chairman of the Badan Koordinasi Penanaman Modal (BKPM), says the China Investment Corporation is planning to offer $4 billion in infrastructure project loans. The BKPM is an investment board that coordinates business between businesses and government. Its aim is to increase foreign direct investment in Indonesia. Another goal is for the agency to improve the lives of its citizens by creating domestic jobs. The types of Indonesian infrastructure projects were not specified. Indonesia is an Asian emerging economy with a growing middle class in desperate need of infrastructure. If the proper infrastructure is not built in a timely fashion, it can harm economic growth and decrease country competitiveness.

Most sovereign wealth funds prefer to invest in developed infrastructure in Western economies. Developed infrastructure is less risky and cash flows do not vary as much as infrastructure projects. In addition, regulation and government transparency are key planks for SWFs to plunk down significant amounts of capital. Indonesia is at an economic crossroads. The country is aiming to build over 20,000 km of roads and provide at least 15,000 MW through power plants in the next few years. Indonesia is also ripe with natural resources in oil and gas. Lastly, Indonesia is fortunate enough to be able to reap the benefits of hydroelectric power, a renewable source of energy that contributes to an overall low carbon economy.

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