The World Bank’s Board of Executive Directors today approved the first Indonesia Logistics Reform Development Policy Loan to enhance logistics and strengthen connectivity. These are key to boosting growth and reducing poverty in this vast archipelagic nation.
The $400 million financing will support the Government of Indonesia to address bottlenecks in the country’s supply chains, such as long dwelling time in ports and lengthy procedures for trade clearances. As a result, Indonesia’s logistic costs account for 25 percent of manufacturing sales, compared to 15 percent in Thailand and 13 percent in Malaysia.
It is cheaper to ship a container of Chinese mandarin oranges from Shanghai to Jakarta than to send similar freight from Jakarta to Padang in West Sumatra, even though the distance between the two Indonesian cities is one sixth of the distance between Jakarta and Shanghai.
“Improved logistics for better connectivity will have significant effects on the country’s competitiveness as well as on poverty. Better logistics can reduce the cost of essential goods and services, particularly in more remote and less developed parts of the country,” said Rodrigo Chaves, World Bank Country Director for Indonesia. “This reform will help Indonesia achieve its target of higher inclusive growth.”
The Logistics Reform Development Policy Loan will also support Indonesia’s much-needed transition from dependence on commodities to a more competitive manufacturing-based economy.
“Costly and unreliable logistics are one of the key constraints to Indonesia’s competitiveness. Addressing this bottleneck is likely to increase production and exports, thus boosting economic growth. And with the end of the commodities boom, the need to improve the country’s level of competitiveness in non-commodity production has become more urgent than before,” said World Bank Senior Economist Massimiliano Calì.
The three main components of the financing are to enhance the performance of ports, improve competition in logistics services, and strengthen trade facilitation.
The World Bank’s support to logistic reforms in Indonesia is an important component of the World Bank Group’s Country Partnership Framework for Indonesia, which focuses on government priorities that have potentially transformational impact.