PT Indonesia Infrastructure Finance Facility Indonesia has made significant progress since the Asian Financial crisis and is enjoying robust economic growth but the infrastructure sector never fully recovered.  Public infrastructure investments dropped from a high of $10 billion in 1994 to less than $5 billion in 2002.  Currently, infrastructure investments amount to just 3 percent of GDP  the World Bank estimates Indonesias infrastructure investment needs at  7-9% of GDP.  Private investment in infrastructure declined particularly sharply  from approximately 2 percent of GDP in the mid-1990s to around 0.4 percent in 2003-04.  Infrastructure is seen as a critical constraint on economic growth in Indonesia but a series of attempts to lure back the private investors, many of them foreign, which had driven infrastructure investment in the early 1990s, has failed.  The Government of Indonesia (GoI) has now launched a broad range of measures to attract private, particularly domestic, investment to infrastructure.  An important element of this effort is the development of domestic capacity to finance infrastructure PPPs by complementing existing domestic financial institutions rather than incurring the sort of contingent liabilities to private investors which so burdened Indonesias public finances after the Asian crisis.  This project, the Indonesian Infrastructure Finance Facility (IIFF) is the center-piece of this effort.  GoI has decided to establish a new, specialized lending institution offering long term, mainly local currency, financing for infrastructure, IIFF, incorporated under the name P.T. Sarana Pendanaan Infrastruktur Indonesia (SPII).   This initiative is being actively supported by the World Bank which has provided considerable advice on the general shape IIF should take.  GoI has also sought IFCs participation in IIFF, both as a signal to other investors on the viability of this initiative and as a source of technical guidance and commercial experience for this specialized venture.  IIFF is being established as a commercial financial institution, to mobilize domestic currency financing of appropriate tenor, terms and price for creditworthy infrastructure projects by: (i) using its good credit rating to borrow from domestic institutional investors and banks looking for long-term placements with risk margins higher than sovereign and large corporate offerings, and by (ii) providing financial products which meet the needs of infrastructure PPP and wholly private projects.  IIFF will be a non-bank financial intermediary with the capacity to assess infrastructure projects and with the long-term liabilities to match a portfolio of long-term assets.  It is expected to focus on long-term senior and subordinated debt and minority equity positions, but its range of products is likely to broaden to credit enhancements, securitizations, and other mechanisms to promote infrastructure investment.  IIF will operate as a commercial entity, with market-based rates and fees.  It will respond to market demand, and adhere to international best practices on corporate governance, operating policies and risk management; providing Indonesia with much needed infrastructure financing expertise.  GoI has embedded this concept in its policy statements on IIFF and it will be reflected in the structure and governance of the institution. The bottleneck which inadequate infrastructure constitutes for the Indonesian economy is recognized.  Attempts to regenerate the interest which international industry investors showed in the 1990s, have not succeeded and the public sector can only provide a fraction of what is needed.  There is a lack of market mechanisms to provide funding in the volumes, structures and maturities needed and there are regulatory constraints and a lack of capacity in both Government and the financial sector, to shape bankable private infrastructure projects.  IIFF will strengthen this capacity, provide a channel for domestic financial institutions to invest in infrastructure and make appropriate long-term financing available for well structured projects.  If it succeeds in linking domestic savings to new private infrastructure investment, the potential development impact is very significant.    By raising infrastructure investment in Indonesia, IIFF is expected to have a positive impact on economic growth.  Moreover, investments in infrastructure projects, such as power, water and transport, have direct impacts on improving quality of life and enabling local economic development.    To the extent that IIFF issues long-term bonds in the domestic market, it will improve the supply of long-term securities for institutional investors who currently face a severely limited range of high quality long-term papers in local currency.