The political and institutional constraints on green finance in Indonesia

• Main Author: Guild, James
• Other Authors: S. Rajaratnam School of International Studies
• Format: Article
• Language: English
• Published: 2022
• Subjects: Social sciences::Political science; Indonesia; Green Finance
• Online Access: https://hdl.handle.net/10356/154925
• Institution: Nanyang Technological University

The ADB estimates Asia’s infrastructure needs from 2016 to 2030 will exceed US $26 trillion. This ballooning demand for infrastructure, coupled with rising investor awareness of the importance of sustainable development, is driving the nascent green finance sector. In emerging markets, raising capital for green projects is often the easy part; identifying and implementing suitable projects and structuring the financing is more challenging. This paper draws on the school of institutional economics to analyse the potential of green finance in underwriting renewable energy development in Indonesia. The paper argues that even if there is strong demand on capital markets for green bonds backing clean energy projects, the institutional design of the renewable energy sector has created a misaligned incentive structure for Indonesia’s political class. The paper concludes by discussing Ministerial Regulation 50/2017 which has created a regulatory framework that side-steps some of these constraints.