Addressing Indonesia’s Infrastructure Deficit

Abstract

Between September 2015 and February 2016, the government of President Joko Widodo (Jokowi) unveiled 10 economic policy packages in an effort to promote deregulation and support investment in key sectors. Foreign investors, at whom many of these measures are directed, have viewed the packages with a mix of cautious optimism and healthy scepticism. Investors have often heard Jokowi announce that Indonesia welcomes foreign capital, only to see these commitments countermanded by the actions of ministers and officials wanting more restrictive regulations and practices. It therefore remains uncertain whether these announcements and policy packages will lead to actual reform.

One area in which the government is showing both intent and progress is infrastructure. Decades of under-investment and poor asset management have left Indonesia with a major infrastructure deficit, the economic and social costs of which are substantial. There are encouraging signs, however. Jokowi’s administration is continuing its agenda of fiscal reform, shifting budget allocations away from energy subsidies and towards capital spending; investment approvals in infrastructure are rising fast; and the country’s four largest construction firms have reported a large jump in the value of government-awarded contracts. Recent months have also seen the completion of the Makassar–Parepare segment of the Trans-Sulawesi railway and the first stage of the New Priok Port at Tanjung Priok, while the long-awaited Umbulan Springs project, which will supply water to Surabaya and surrounding areas, has been awarded to a preferred bidder.

Demonstrating rapid progress in delivering infrastructure is clearly important to the Jokowi administration, but longer-term challenges remain. For one, Indonesia’s inefficient planning and delivery model for national roads needs to be overhauled if the country is to safeguard its economic growth. The government has yet to fully tackle this and other long-term reforms; it has, however, recently introduced regulations that augur well for new flows of private investment, such as reinstating the role of such investment in the water sector and allowing for a more realistic risk allocation in public–private partnerships.

Sejak September 2015 hingga Februari 2016, pemerintahan Presiden Joko Widodo (Jokowi) telah mengeluarkan 10 paket kebijakan ekonomi dalam upaya menjalankan deregulasi dan mendorong investasi. Investor asing menyambut paket-paket tersebut dengan optimisme sekaligus skeptisme. Mereka telah sering menyaksikan Jokowi menyatakan bahwa Indonesia terbuka terhadap modal asing. Namun komitmen tersebut segera dimentahkan oleh pernyataan dan tindakan para menteri dan pejabat yang mengutamakan kebijakan dan praktik yang lebih restriktif. Oleh karenanya, apakah paket-paket kebijakan ini akan membawa kepada reformasi yang nyata, masih menjadi pertanyaan.

Satu area dimana pemerintah menunjukkan tekad dan kemajuan adalah infrastruktur. Puluhan tahun dengan kekurangan investasi serta pengelolaan aset yang buruk telah membuat Indonesia menderita defisit infrastruktur, dengan biaya ekonomi dan sosial yang substansial. Namun saat ini ada tanda-tanda yang menggembirakan. Pemerintahan Jokowi melanjutkan agenda reformasi fiskalnya, dengan menggeser alokasi anggaran dari subsidi energi ke belanja modal; jumlah investasi yang disetujui di infrastruktur meningkat pesat; dan empat perusahaan konstruksi terbesar telah melaporkan kenaikan yang tinggi dari nilai kontrak yang diberikan pemerintah. Dalam bulan-bulan terakhir ini, terdapat juga penyelesaian segmen Makassar-Parepare dari jalur kereta Trans-Sulawesi serta tahap pertama dari Pelabuhan Priok Baru di Tanjung Priok. Sementara itu, proyek Mata Air Umbulan, yang akan mengalirkan air ke Surabaya dan sekitarnya, telah disetujui.

Menunjukkan kemajuan pesat dalam pembangunan infrastruktur merupakan sesuatu yang penting bagi pemerintahan Jokowi, namun kendala-kendala jangka panjang tetap menjadi tantangan. Salah satunya, model perencanaan dan pembangunan jalan nasional yang tidak efisien harus diperbaiki total jika Indonesia ingin menjaga tingkat pertumbuhan ekonominya. Pemerintah belum sepenuhnya menyelesaikan masalah ini, demikian juga dengan reformasi jangka panjang lainnya. Namun, pemerintah baru-baru ini mengeluarkan peraturan yang tampaknya bisa mengundang aliran investasi swasta baru, seperti mengembalikan peran investasi swasta dalam sektor air dan memungkinkan alokasi risiko yang lebih realistis dalam kerjasama pemerintah-swasta.

Keywords:

• infrastructure
• roads
• PPPs
• water supply

JEL classification:

• E60
• H54
• L95
• O11
• O18
• O53
• R42

Notes

1 Between June and October 2015, around 2.6 million hectares were burned to clear land for oil-palm plantations. The World Bank estimates that, in 2015, fires cost Indonesia $16.1 billion, or 1.9% of its GDP, which is more than palm-oil production contributed to the economy in 2014 (Glauber 2016).

2 The previous five packages were reviewed in the December 2015 survey.

3 It remains to be seen whether the government can employ a similar strategy in 2016. In late October 2015, the DPR held up a planned Rp 40 trillion capital injection for infrastructure SOEs in the 2016 budget, pending further discussions in early 2016. Many house members would prefer the funds to be used for other purposes, such as social programs. The government maintained that this delay will not affect disbursements, because implementation usually happens in the second half of the year (Jakarta Post, 3 Nov. 2015). Later reports, however, noted that some SOEs in the infrastructure sector had already begun to shelve some projects scheduled to start in 2016 (see, for example, Jakarta Post, 11 Dec. 2015).

4 Indonesia Infrastructure Finance Conference 2015, 16–17 June, Grand Hyatt, Jakarta.

5 Capital recycling involves selling or leasing public infrastructure assets to private buyers and then reinvesting the sales revenue in new infrastructure assets.

6 Fourth-quarter capital expenditure by line ministries in 2015 (Rp 132.2 trillion) almost doubled that of 2014 (Rp 78.5 trillion).

7 From data made available by the Ministry of Finance’s Fiscal Policy Agency.

8 Presidential Regulation 30/2015, for example, allows private investors to acquire land on behalf of the government to help expedite infrastructure projects, and Presidential Regulation 148/2015 streamlines government approval processes for land acquisition.

9 Based on an expected Rp 170 trillion budget over five years, and approximate construction costs of $0.5 million per two-lane kilometre.

10 As of August 2015, Bina Marga had 3,266 active contracts, with a total value consistent with the agency’s annual budget—roughly 11–12 kilometres of road per contract.

11 The analysis by the IndII road-planning team used a Cube-based model (a software tool commonly used in transport planning and traffic engineering), which in this case draws on a range of inputs, including demographic data, economic forecasts (various sources), and road inventory data (both current and forecast) to generate trip data for various vehicle types, including cars, buses, and goods vehicles in Java and Sumatra.

12 From an analysis by the IndII road-planning team, summarised by Lee (2015)

13 From an IndII analysis using audited data on PDAMs from the Financial and Development Supervisory Agency.

14 Safe non-piped drinking water, as defined by the Directorate General of Human Settlements, in the Ministry of Public Works and Housing, is a water source on the premises, available when needed, and free from pathogens and elevated levels of toxic chemicals at all times.