National Development Planning Minister Armida S. Alisjahbana, who is also the head of the National Development Planning Board (Bappenas), has called for greater participation from the private sector and local governments in the development of Indonesia’s infrastructure.
Armida believed that Indonesia could grow 7 percent annually if the country had at least 5 percent infrastructure-to-gross domestic product (GDP) spending, which currently stood at 4.7 percent.
“The point is, if we want our economic growth to be sustainable and to expand at a faster pace, then one of the necessary prerequisites is that we must invest more in infrastructure,” she told reporters during a discussion recently.
“I am not saying that the government is responsible [for all infrastructure spending], but there must be an equal workload between the government, the private sector and state-owned enterprises.”
Armida compared Indonesia’s infrastructure spending to China and India, which spend around 7 percent and 9 percent of their respective GDPs on infrastructure.
Indonesia needs to assign Rp 438.1 trillion (US$45.63 billion) for infrastructure projects in the 2013 state budget. The government plans to front Rp 203.9 trillion of the total and the remainder is expected to come from local governments (Rp 96.5 trillion), state-owned enterprises (Rp 77.4 trillion) and the private sector (Rp 60.2 trillion), according to Bappenas data.
In the next five years, Indonesia needs at least $140 billion to finance infrastructure development, according to Bappenas. The government, however, can only afford to fund around 35 percent of the much needed infrastructure financing, the rest is expected to come from private investors under public private partnership (PPP) schemes.
Armida said that the private sector and state-owned enterprises had an important role to play to ensure increased interconnectivity in the country by actively participating in infrastructure projects.
If the private sector or state-owned enterprises encountered financing problems, there were “breakthrough steps” that could be taken to raise funds, such as issuing infrastructure bonds, conducting an initial public offering or borrowing from international donors, such as the World Bank or the Asian Development Bank (ADB), she suggested.
Meanwhile, Bappenas deputy head Dedy S. Priatna proposed a scheme where the government, in this case the Finance Ministry, would provide a sovereign guarantee for companies that invested in infrastructure projects to encourage more of the private sector to participate in infrastructure development.
Dedy argued that companies were reluctant to invest in these sorts of projects because they were classed as high risk and were not lucrative, as the internal rate of return (IRR) was below 10 percent. He added that the sovereign guarantee might alleviate companies’ reservations.
“If an infrastructure project has an IRR of less than 10 percent, then the government can provide a sovereign guarantee for companies participating in the project,” he suggested.
Also speaking at the discussion was Bank Negara Indonesia (BNI) chief economist Ryan Kiryanto, who argued that banks were restricted from investing in infrastructure projects due to Bank Indonesia’s maximum credit allocation regulation.