Australia offers Indonesia a US$1 billion COVID-19 recovery loan

As Indonesia suffers serious economic turbulence as a result of the pandemic, the Australian government intends to help the country to face this problem by offering a US$1 billion development loan. The loan is intended to be a gesture of goodwill towards the most populous country of this region which is experiencing a deep economic crisis and aims to demonstrate that Australia is willing to strengthen its relationship with it.

In the recent Australian development aid budget, Canberra decided to significantly reduce financial support for Southeast Asia. For Indonesia, this support decreased by more than half, from US$374.9m in 2014-2015 to only US$185.6m in 2020-2021.

The standby low-interest loan is due to be repaid in 15 years and is designed to tackle the COVID-19 outbreak which has affected Indonesia particularly severely. As of 18th November, this southeastern Asian state had recorded over 474,000 cases and over 15,000 deaths which is the highest number in the region. However, it is believed that the official statistics reveal far from the real extent of the pandemic as Indonesia conducts very few tests, having one of the lowest averages of testing in the world.

Indonesian Finance Minister, Ms. Sri Mulyani said the loan is aiming to stabilize the budget and would help provide some “room to manoeuvre” as well as “diversifying our risk so that we are able to not only cope with COVID-19 and helping people, business and SMEs but can also maintain the safety and sustainability of our fiscal stance”.

The Indonesian economy has plunged into recession for the first time since 1997-98 when it was hit by the Asian financial crash. This year, the Indonesian economy shrank by 3.5% between July and September, while between April and June it recorded an even greater decrease of 5.3%.

Canberra granted the US$1 billion loan following another major aid-package offered to Indonesia in June by the Asian Infrastructure Investment Bank (AIIB) which is supported by China. The loan is also co-financed by the Asian Development Bank and the World Bank. The money will be utilized to economically support companies, households, and the public healthcare system.

In addition to the US$1 billion loan, Australia has also pledged to provide Indonesia with COVID-19 vaccines within the framework of the global COVAX facility scheme with Australia committing to contribute US$500 million to the scheme.

Apart from Australia, Japan has also declared its willingness to help Indonesia. Last month the Japanese Prime Minister, Suga Yoshihide, proposed a low-interest loan of US$473 million for this Southeastern Asian country to help to curb the pandemic.

According to some voices, Australia’s decision to grant the loan is not simply a gesture of goodwill but is largely a political step taken to balance Chinese influences in Southeastern Asia. While the Australian government decided to cut development aid for the region, China stepped up its COVID-19 diplomacy approach. This is why the Australian media claims that, despite its previous decision to reduce its development aid budget, the government is planning to pump millions of dollars into the economies of those south-east Asian countries economies badly hit by the COVID-19 crisis. Canberra wants to hinder the overly excessive impact that China is trying to achieve in the region. Sources in the Australian government, i.e. the Department of Foreign Affairs and Trade, claim that Canberra is working on a special package worth hundreds of millions of dollars for south-east Asia countries with the money planning to be spent within the next four years.