Indonesian President Promises Massive Flows of Money to Boost Infrastructure

Indonesia, infrastructure, airports. seaports

News agency reported that Indonesia is drafting plans for more than US$400 billion in building projects, from constructing 25 airports to new power plants, as the government seeks to stimulate growth in Southeast Asia’s largest economy.

The sweeping proposal calls for a record 5,957 trillion rupiah ($412 billion) in investments from 2020 to 2024, Minister Bambang Brodjonegoro said in an interview this week. As much as 40% of the total will be funded directly by the government, 25% through state-owned enterprises and the rest through the private sector, he said. About 60% of the spending will go toward transportation-related infrastructure, according to a draft of the plan seen by Bloomberg and verified by the ministry.

Such spending would build on President Joko Widodo’s strategy of using infrastructure as a key plank to boost economic growth and spread wealth beyond the main island-powerhouse of Java, where the capital is located. Building critical ports and facilities is particularly complicated and costly in Indonesia because the country is dispersed across 17,000 islands through an area spanning the distance between New York and London.

“The only way for Indonesia to have higher economic growth is connectivity,” Brodjonegoro said in Jakarta. “We are planning to establish the equivalent of a highway for the skies by building airstrips or smaller airports for connectivity” in remote areas such as the Papua region, he said.

Next Five Years

The proposal is a “positive breath of fresh air” for Indonesian state-owned construction companies, said Evan Hadiwidjaja, head of research at PT Sinarmas Sekuritas. This ambitious plan could benefit their longer term pipeline although their balance sheets could be strained, he said.

Despite the potential benefits, massive projects have been challenging for the government to finance in recent years, partly due to low tax compliance in Indonesia and weak commodity prices that have strained the state budget. Several projects have been shelved or delayed, even as bodies including the World Bank have warned of a massive infrastructure gap limiting economic growth.

Other projects have been realised but without any proper consultation over their viability. As an example, West Java spent over US$250 million into a brand new airport in Kertajati which -one year after opening- remains totally empty as it is not connected properly by road…

Indonesia has been expanding at about 5% a year. While the government is aiming for growth of 5.3% to 5.6% next year, that’s still short of the 7% Jokowi had targeted before his first term began.

The ministry is preparing final documents on the investment plan to present to the president for approval, a ministry spokesman said, once the April election results are definitely confirmed this week.

The proposed investments exceed the $350 billion infrastructure drive — then the largest in the nation’s history — set during Jokowi’s first term. The new spending plan is equivalent to about 5.7% of gross domestic product from 2020 to 2024, during which the government has targeted economic growth of 5.4% to 6%, according to the draft of the proposal. The government is open to the possibility of financing some projects through debt, Brodjonegoro said.

The proposal also calls for the upgrade of as many as 165 existing airports and the development of water-based facilities for seaplanes to access remote islands in the world’s largest archipelago, Brodjonegoro said. Better infrastructure would be a bonus to the government’s efforts to attract more tourists.

(Source: Bloomberg)