BBI is one of the most conservative commercial banks in Indonesia, with particular strength in serving small and medium-sized (SMEs) businesses. The bank intends to increase its capital by issuing new shares via rights issue. Therefore BBI has invited IFC to become a shareholder and offered IFC the right to board representation. Development Impact Efficient intermediation of capital into productive investments is vital to the restructuring and the future growth of Indonesia. With a limited number of alternative intermediaries, the banking sector has a significant role to play. By investing in the capital of BBI, IFC will be supporting the modernization and growth of an intermediary that has the opportunity to become a more significant player in the Indonesia banking sector. While BBI is going through the transition from a privately owned company to a publicly listed company with a broader number of shareholders, IFC is in a position to facilitate such transition through strengthening corporate governance and transparency. At the same time, IFC’s investment would help BBI to become a model institution on the Jakarata Stock Exchange. Indirectly, IFC’s investment would benefit the SME sector as BBI’s focus is on the SME segment representing 40% of Indonesia’s GDP and 50% of total employment. Fit With World Bank Group Strategy and IFC Role The World Bank Group’s current strategy in Indonesia, as outlined in the FY01-03 Country Assistance Strategy, focuses on three broad areas closely related to the Government’s priorities in its economic recovery program and its medium-term development plan: sustaining economic recovery and promoting broad-based growth, building national institutions for accountable government, and delivering better public services for the poor. After placing its program (in March 2001) of new investments in Indonesia under review until the legal and law enforcement climate in the country improved, IFC cautiously restarted its program in February 2002. In terms of development priorities, IFC's strategy for Indonesia focuses on: assisting the recovery of the financial and corporate sectors - through provision of liquidity facilities, support of financial intermediaries, and assistance for corporate restructuring; overcoming structural weaknesses in the economy – through help in building up the institutional and regulatory framework, and promoting long-term sustainable development - by supporting environmentally sound practices in natural resource use, and the integration of the economy into a globalized marketplace. The proposed project is consistent with this strategy.