The Development Policy Loan (DPL) with a
Deferred Drawdown Option (DDO) is a
committed credit line that allows the borrower to
rapidly meet its financing requirements following
a shortfall in resources due to adverse economic
events. On March 3, 2009, the World Bank
approved a unique US$2 billion DPL DDO for
Indonesia. The loan was the largest component
in a US$5.5 billion contingent financing facility that helped Indonesia mobilize
funding from the capital markets by sending a strong positive signal to
international and domestic markets about its available economic strength.


Indonesia was in a relatively strong position when the   In the light of their experience during the Asian
global financial crisis struck in September 2008. Real   financial crisis of 1997-98 when credit became
GDP growth was at a ten-year high of 6.3% in 2007,       scarce, choking the real economy, the government of
but the global turmoil soon began affecting its          Indonesia established a crisis monitoring and
financial markets. The month of October saw a 32%        response system in anticipation of a possible
decline in the stock market, a nearly 450 basis point    slowdown in growth or crisis. They felt it was
increase in yields on medium-term domestic bonds,        important to take precautionary measures that would
a 700 basis point increase in Indonesia’s                allow them to continue raising funds from domestic
international bond spreads, and a 17% depreciation       and international markets to meet their 2009
of the rupiah against the US dollar. Indonesia ’s        financing needs.
international reserves, which had reached a high of
                                                         An important element of the measures adopted was
US$60 billion, fell by nearly US$10 billion to US$50
                                                         back-up financing that could be drawn down as
billion by the end of the month.
                                                         needed and would be used to send a strong positive
                                                         signal to the markets to boost investor confidence.
                                                                     have achieved without the facility. Between
On March 3, 2009, the World Bank approved a                          September 2008 and March 2009, Indonesia raised
unique US$2 billion development policy loan (DPL)                    more than US$6.3 billion through five bond
with a Deferred Drawdown Option (DDO) for                            issuances in the capital markets.
Indonesia. The government could draw down the                        The DPL DDO also acted as a backup financing
loan if market conditions deteriorated and its                       facility, helping to ensure that the Indonesian
access to international or domestic financial                        government had access to resources if, and when,
markets became restricted. Indonesia itself                          markets failed to provide the required financing at a
imposed conditions for withdrawal related to market                  reasonable cost.
access, in terms of pre-specified parameters.

The DPL DDO is a contingent credit line that allows
the borrower to rapidly meet its financing
requirements following a shortfall in resources due                   Approval Date
                                                                                                 March 3, 2009
to adverse economic events such as a downturn in
economic growth or unfavorable changes in                             Amount and
                                                                                                 US$2 billion
commodity prices or terms of trade. The borrower                      Currency
may defer disbursement of the DPL for up to three                     Repayment                  24.5 years of final maturity
                                                                      Schedule                   (including a 10 year grace
years (renewable for an additional three years).
                                                                                                 period) with leveled
An important pre-approval criterion for this                                                     amortization of principal
particular instrument is that the country must have                   Interest Rate              6-month LIBOR plus a fixed
an appropriate macroeconomic policy framework in                                                 spread
                                                                      Disbursement Period
place, which the Bank monitors periodically.                                                     2 years
                                                                      Fees
                                                                                                 0.25% Front-End Fee1
The DPL DDO was the largest component in a
US$5.5 billion contingent financing facility in which
the Governments of Australia and Japan, as well as
the Asian Development Bank, also participated.
The facility contributed towards improving market
sentiment: Indonesia was one of the first countries
to issue a bond in the international capital markets
during the crisis and got better terms than it would




Miguel Navarro-Martin, Head of Banking Products, mnavarromartin@worldbank.org, +1 (202) 458 4722

1
  On August 5, 2009, IBRD increased the front-end fee of the DPL
DDO from 0.25 percent to 0.75 percent and introduced a 0.5 percent
renewal fee for new DDOs.




                                                                                                                Photo Credits
                                                                                       Front: Jerry Kurniawan / World Bank