MCC - Millennium Challenge Corporation - Indonesia

 

The Indonesia Infrastructure and Finance Compact is the second partnership agreement, or “compact,” between the Millennium Challenge Corporation (MCC)—a United State government agency that provides foreign aid to reduce poverty in some of the world’s poorest countries—and the government of Indonesia. Signed on April 13, 2023, the compact officially entered into force (EIF) on September 4, 2024, marking the start of a five-year period during which the identified programs and reforms will be implemented.

Historical ContextIndonesia, the largest economy in Southeast Asia, has experienced robust economic growth since the 1990s. Despite this progress, the nation’s existing financial structures have often limited access to capital for micro, small and medium-sized enterprises (MSMEs), which represent 99% of all private businesses and engage nearly 97% of the country’s workforce. These obstacles restrict private-sector investment in essential infrastructure—particularly in transportation and logistics—hampering the flow of goods and services across an archipelago of more than 17,000 islands.

The first MCC compact in Indonesia addressed critical development challenges through targeted investments, demonstrating a strong, cooperative commitment to advancing the country’s economic growth. Building on these successes, both governments signed the Indonesia Infrastructure and Finance Compact on April 13, 2023, with the understanding that it would commence upon the entry into force date. The EIF, reached on September 4, 2024, marks the point at which both parties affirmed that all conditions had been met, enabling the compact’s activities to formally begin.

Funding Sources

The five-year, $698 million initiative includes a $649 million grant from MCC and a $49 million contribution from the government of Indonesia. This funding model, driven by grant-based assistance rather than loans, reflects the MCC's emphasis on country-led development strategies. The approach ensures that Indonesia maintains responsibility and oversight, aligning the compact's initiatives closely with national priorities and strategies for sustainable growth.