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November 22, 2020, 12.58 AM

JAKARTA, – The Indonesian government has agreed to a €550 million loan from Germany as part of a bilateral agreement.

The German government through the Embassy of the Federal Republic of Germany in Indonesia made the announcement of the bilateral loan which amounts to Rp 9.1 trillion.

The agreement was signed separately in Frankfurt, Germany and the Indonesian Ministry of Finance in Jakarta.

An official tweet from the German Embassy in Jakarta on Saturday read, “The loan agreement worth €550 million has been signed separately at the German Development Bank KfW in Frankfurt and the Ministry of Finance in Jakarta which has been adjusted due to the coronavirus pandemic.”

Read also: Indonesia Receives AUD$1.5B Loan from Australian Government

The German Embassy’s Facebook account provided more context on the German loan by adding that the Indonesian government had requested the loan for its Covid-19 Active Response and Expenditure Support (CARES) program.

The CARES program was designed to adequately respond to the coronavirus pandemic by making available medical equipment, bolstering the economy, and guided assistance for vulnerable groups.

The German loan will additionally be used by the Indonesian government to build university hospitals in Makassar and Malang.

Luky Alfirman, Director-General of Financing and Risk Assessment at the Indonesian Ministry of Finance, and Florian Sekinger, the Head of the Sustainable Economic Development East and South East Asia Agency of Germany’s KfW, signed the agreement.

Loan from Australia

Prior to the German loan, the Indonesian government received financial assistance from the Australian government worth AUD$1.5 billion or Rp 15.45 trillion.

Australia’s Finance Minister Josh Frydenberg said that the approval of the Rp 15.45 trillion loan was due to Indonesia’s record of sound fiscal management that has allowed it to swiftly respond to the Covid-19 crisis.

"This loan reflects the extraordinary times which we all must face together and is in recognition of Indonesia’s record of sound fiscal management. Indonesia’s strong and quick recovery is critical for not only Indonesia but for Australia and our region,” said Frydenberg.

Read also: US, Australia Donate Ventilators to Help Indonesia Combat Covid-19

Indonesia’s Finance Minister Sri Mulyani said that the Australian government’s loan gave the Southeast Asian nation room to maneuver several policies to mitigate the coronavirus pandemic.

The financial loan will enable Indonesia to lower its fiscal risks as the government expects a budget deficit of 6.34 percent in 2020.

“It's providing us with the room to maneuver, as well as diversifying our risk so we are able not only to cope with Covid-19, helping people, business and Indonesian SMEs but can also maintain the safety and sustainability of our fiscal stance,” said Sri Mulyani.

The Australian government has given Indonesia 15 years to repay the AUD $1.5 billion.

Sri Mulyani said that the loan supports the Asian Development Bank-led Covid-19 Active Response and Expenditure Support Program.

Read also: Indonesia and Australia Move Ahead with Beef and Livestock Trade

“The loan builds on our highly valued economic relationship and a strong record of bilateral cooperation. Australia and Indonesia are neighbors, friends, and Comprehensive Strategic Partners, and we are committed to supporting one another through this crisis.”

Criticisms pouring in

The decision to take out international loans under the Joko Widodo administration in handling the coronavirus pandemic has drawn immense criticism due to its immense scale.

Former Indonesian Finance Minister Rizal Ramli criticized the government deeming it reckless as the number of foreign loans continues to add up.

“Bond issuance is becoming more expensive because of the interest rate. The government must take out a loan to pay the interest rate alone. It’s getting worse.”

Read also: Pay Later: G20 Extends Debt Relief for Developing Countries

Rizal, who was a former Coordinating Minister of Maritime Affairs during the Joko Widodo administration, added how the country is piling its financial debt from bilateral agreements on top of existing debt obligations.

“That is why you need to change strategies from 'beggars of bilateral loans' of one country to another country.”

(Writer & Editor: Muhammad Idris)


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