As a net oil importer since 2004, Indonesia enjoys a state budget windfall âsavingâ every time international oil prices fall steeply and allow for a massive cut or the abolishment of fuel subsidies
s a net oil importer since 2004, Indonesia enjoys a state budget windfall 'saving' every time international oil prices fall steeply and allow for a massive cut or the abolishment of fuel subsidies. Now that oil prices have collapsed to below US$50 per barrel, the government expects to save almost Rp 200 trillion ($16 billion) throughout this year that can be ploughed into more productive programs, notably poverty alleviation and infrastructure.
In this context, the government proposed amendments to the 2015 state budget last week to the House of Representatives that will result in, among other things, the doubling of investment in infrastructure development from last year's Rp 139 trillion to Rp 290 trillion in a bid to boost economic growth to 5.8 percent from last year's estimated 5 to 5.2 percent. Earlier this week, President Joko 'Jokowi' Widodo revealed in Bandung that the government would inject Rp 48 trillion in additional equity shares into state companies in a bolder move to boost financing for infrastructure development.
The additional capital injection will be made in seaport management and operating company PT Pelabuhan Indonesia, airport management company PT Angkasa Pura, railway company PT Kereta Api Indonesia, construction firm PT Wijaya Karya and Bank Mandiri, the country's largest bank, to increase its resources to be used as loans for infrastructure construction.
We hope the House would approve the proposed additional investments because they would go a long way toward accelerating infrastructure development. Poor and inadequate infrastructure has long been the biggest barrier to economic growth and competitiveness.
The additional equity injection should also be welcomed because it will expand the financing abilities of state companies in building new airports or seaports or expanding the capacities of existing facilities. This move is rather innovative, strikingly different from the practice of the government over the past decade, which tended to squeeze bigger dividend payouts from state companies to bolster budget revenues.
Pouring additional infrastructure financing into state companies could be even more effective in speeding up infrastructure development, given the perpetually adequate institutional capacity of the government in implementing its investment budget.
But allocating larger sums of budget funds for infrastructure development is only part of the task. Even more challenging are the complex and arduous procedures for land acquisition that have become the main cause of long delays and massive cost overruns of infrastructure projects.
The government therefore needs to ensure the new land acquisition law that comes into full-fledged enforcement this year will truly remove uncertainty in land acquisition by preventing land speculation, speeding up the process and at the same time securing appropriate compensation for land owners through independent land valuation. The government could even consider fully financing land acquisition for infrastructure projects.
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