Blended finance to help reach development goals in IndonesiaThursday, 10 Oct 2019
Leaders from all over the world this week gather in New York to attend the high-level events of the annual United Nations General Assembly. Sustainable development is high on the agenda, related to climate change, Agenda 2030 on Sustainable Development (SDGs), universal health coverage, financing for development and a lot more.
Under the multilateral agreements, countries including Indonesia have committed themselves since 2015 to the Agenda 2030 on SDGs, and related international commitments, such as the Paris Agreement on Climate Change and the Addis Ababa Action Agenda on financing for development.
Strong commitment is a promise that needs to be delivered on with secure and adequate financing. Indonesia is determined to utilize blended finance as an innovative financial mechanism to fund its international commitment goals, which are in line with Indonesia’s national priority strategies.
The term blended finance refers to a mixing of public and private funds through a common investment scheme or deal, with each party using its expertise in a complementary way.
Pancasila with its five ideological principles and the 1945 Constitution stipulate the achievement of a just and prosperous society, supported by strong and inclusive economic development, as the basic goal of development.
Economic inclusivity is an important element for peace and prosperity. The Agenda 2030 member states have agreed to work hand in hand in a global partnership to achieve 17 SDGs to end poverty, improve health care and education, protect the environment and reduce inequality, among other aims.
This year, Indonesia became one of only seven countries to submit a voluntary national review. It is a review mechanism to track the progress of SDG.
Indonesia has been successful in reducing inequality, complemented by sustained and inclusive economic growth and accountable governance. Job opportunities and access to education have increased, while the poverty rate has been reduced to a single digit in 2018 for the very first time in our history.
But Indonesia and other developing countries have a funding shortage of more than US$2.5 trillion annually to achieve the SDGs, a funding gap that far exceeds government budgets and that can only be plugged by private funds and other resources.
Blended finance is emerging as one of the best ways to attract private capital. It uses official development or philanthropic finance to remove the barriers to private finance by reducing the risk of SDG investment. By de-risking these investments, blended finance has the potential to capture more than $1 trillion in additional annual investment.
The importance of blended finance has also been acknowledged at the 3rd International Conference on Financing for Development known as the Addis Ababa Action Agenda in 2015. More recently, at the Group of 20 leaders’ meeting in Osaka in June, Indonesia was firm to make blended finance recognized as one of the innovative financing mechanisms for development.
As a G20 economy and fast-growing emerging country, Indonesia has been demonstrating strong leadership for the SDGs, including through the development of various innovative financing mechanism.
Green sukuk or green Islamic bonds are among the government’s instruments for financing climate change-related activities and achieving the SDGs. The first green sukuk, issued in March 2018, reached $1.25 billion, and the latest, in February 2019, attracted $750 million.
In recent years, Indonesia has embarked on concrete action to advance its innovative financing mechanisms. It launched its first blended financing platform — SDGs Indonesia One — to support large-scale sustainable infrastructure projects through PT Sarana Multi Infrastruktur. The platform has raised an impressive $2.46 billion in commitments to date and is targeting to reach $4 billion.
The government has also reached a milestone by utilizing zakat funds in partnership with the UN Development Program, the National Alms Agency (Baznas) and Bank Jambi to provide much-needed access to electricity for over 4,000 villagers through micro-hydropower plants.
Indonesia believes that blended finance is a key pathway to drive inclusive and sustainable growth, deliver global climate action under the Paris Agreement and achieve the SDGs.
Globally, the government took on a leadership role by hosting Tri Hita Karana (THK) Forum on Sustainable Development for Blended Finance and Innovation during the International Monetary Fund-World Bank Annual Meetings in Bali last October. The Forum launched more than 30 high-impact projects, investments and initiatives and mobilized up to $10 billion for priority SDG sectors, including green infrastructure, sustainable land use, women and innovation.
During the 2019 UN General Assembly, the government, with the UNDP and the THK Forum, are again hosting a side event dialogue, “Leveraging blended finance for the SDGs”. The dialogue will discuss how to mobilize private capital for the SDGs and will highlight investment opportunities for blended finance.
There is still much homework, but the outlook for the blended financing market to scale and finance the SDGs in Indonesia is indeed promising. As a strong proponent of the SDGs, Indonesia with likeminded partners will continue to champion innovative finance for development at home and on the international stage.
This opinion piece also appeared in The Jakarta Post, Sept. 26, 2019 edition
The views expressed are his own.