WASHINGTON (Dec. 08, 2022) — The Millennium Challenge Corporation’s (MCC) Board of Directors unanimously approved the proposed $698 million Indonesia Compact today, which includes $649 million from the United States and a $49 million contribution from the Government of Indonesia.
The proposed Indonesia Compact is designed to improve the country’s transport and logistics infrastructure, developing high-quality, climate-conscious transportation infrastructure in five provinces while increasing access to finance for micro, small, and medium-sized entrepreneurs (MSMEs).
“This compact will leverage Indonesia’s own resources and focus on sustainability and scalability, improving the country’s resilience against climate change and other external shocks while creating more opportunities for businesses to access market capital,” said MCC Chief Executive Officer Alice Albright. “This will be particularly impactful for Indonesia’s micro, small, and medium-sized businesses, which generate roughly 60 percent of the country’s GDP and employ nearly all the country’s private sector workforce.”
The proposed compact, which is one of the largest bilateral grants in the agency’s history, is expected to deliver benefits across a diverse set of priority provinces with a combined population of more than 23 million Indonesians, including more than 48,000 MSMEs.
“Improving access to finance for micro, small, and medium-sized businesses, especially those owned by women, will allow a whole segment of the population to start, build, and grow a new generation of businesses, attracting more private-sector investors while also creating regional trade opportunities,” added Albright.
Along with implementing policy and institutional reforms, the proposed grant program will include three separate projects — each of which responds to a different economic constraint identified through joint analysis, and firmly aligns with Indonesia’s own development priorities:
- The $350 million Advancing Transport and Logistics Accessibility Services Project (ATLAS), which aims to improve transport planning and preparation in target provinces by preparing, structuring, procuring, and delivering support to sub-national governments.
- The $95 million Financial Market Development Project (FMDP), which will address the root causes of underdeveloped project financing market and capital markets by building capacity for and mobilizing green finance and other blended finance mechanisms.
- The $136 million Access to Finance for Women-owned / Micro-, Small and Medium Enterprises (W/MSME) Finance Project, which aims to increase lending from formal financial service providers to MSMEs and W/MSMEs in the target provinces by gathering and analyzing MSME financial and technical performance data as well as providing technical assistance, digital and financial literacy training, and other demand-driven business development support.
The Financial Market Development Project will focus on the national level while the other two programs will be implemented at the sub-national level in the North Sulawesi, Riau, Riau Islands, Bali and South Sumatra provinces.
MCC previously partnered with the Government of Indonesia for a $55 million threshold program, which bolstered several key anti-corruption institutions and targeted childhood immunizations. Additionally, in 2013 MCC invested in a $474 million compact to modernize government procurement procedures, improve health and nutrition, expand sustainable energy, and strengthen natural resource management. Once the new compact is implemented, MCC’s total investment in Indonesia will be roughly $1.2 billion.
The Millennium Challenge Corporation is an independent U.S. government agency working to reduce global poverty through economic growth. Created in 2004, MCC provides time-limited grants and assistance to countries that meet rigorous standards for good governance, fighting corruption and respecting democratic rights.