Opening the Black Box: Disbursement Delays Impacts on Growth in Asian Development Bank (ADB) Loan Projects in Indonesia
Opening the Black Box: Disbursement Delays Impacts on Growth in Asian Development Bank (ADB) Loan Projects in Indonesia

Author(s): Muhammad Amir Ingratubun, Akhmad Fauzi
Subject(s): Health and medicine and law, Economic development
Published by: Scientia Moralitas Research Institute
Keywords: Disbursement delays; growth; money creation
Summary/Abstract: Compared with commercial banks that take one day, Asian Development Bank (ADB) loans take over 5-year before they are fully disbursed after the borrower signed the loan agreements, because of conditionalities. During which, the funds stay in the banks and gain compounded interest disfavoring Indonesia and affect its economic growth. Development aid studies have mostly overlooked these gains, and their impacts. We reviewed the financial costs of delays during project implementation in Indonesia and their impacts on GDP growth involving 325 ADB's loan projects with over 1,100 sub-loans, from 1969 to 2017 totaled over $33 billion. We applied a non-econometric, and quantitative attribution methodology, adopting project and portfolio management principles. The results show that 'if disbursed 100% in year-1', the ADB loans help Indonesia stabilizing growth at 6% per annum until they are at 1%-GDP. Because of disbursement delays, this is shortened by half with 60% volatility and declining at 0.42%-GDP (average ADB loans) due to ADB's standard implementation of 5-year and with 2-year delays (7-year). Growth sharply decays at 0.5%-GDP and reaches zero as ADB loans increase to 0.81%-GDP. Indonesia suffers a capital loss of $0.5 - $12 per $1 loan because of disbursement delays under today's prevalent banking practices. Accounting for these losses, ADB loans have severe negative impacts as growth suffers over 200% volatility because of disbursement delays. Fixing this is simple but requires a fundamental change.

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