Following the1997–1998 Asian financial crisis, Indonesia became highly aware of the need to deepen and diversify its finance sector. Under the Medium-Term Development Plan, 2004–2009 and the subsequent National Medium-term Development Plan, 2010–2014, the government thus committed to developing the country’s capital market and nonbank finance subsector.
In 2009, Indonesia’s vertically integrated, state electricity company, Perusahaan Listrik Negara (PLN) had an ambitious plan to invest about $1.2 billion in the electricity distribution sector during 2010−2014 to reduce distribution losses and carbon dioxide (CO2) emissions. PLN intended a large part of this plan to be financed by loans from bilateral and multilateral partners.
Underdeveloped infrastructure and poor domestic and international connectivity prevented Indonesia from achieving its growth potential. Furthermore, the pace of economic growth and job creation was insufficient to reverse the declining poverty reduction rate and widening rural-urban disparity as well as close the socioeconomic gap between the western and eastern regions.
During 2000–2005, infrastructure investments in Indonesia dropped to an annual average of 3% of gross domestic product (GDP), from 8% of GDP during 1995–1997. Private infrastructure investment fell sharply from 1.8% of GDP during 1995–1998 to 0.5% of GDP in 2000–2005.