Investment affairs: Barclays Asia Pacific co-CEO Andrew Jones (left to right), Finance Minister Bambang Brodjonegoro, Bank Mandiri president director Budi Gunadi Sadikin and Mandiri Sekuritas president director Abiprayadi Riyanto converse during the Mandiri Investment Forum 2015 in Jakarta on Tuesday
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Indonesia needs to make radical changes to the country's infrastructure development program in order to be able to propel long-term economic growth, international economic observers said in an investment forum Tuesday.
The investment forum ' held by state lender Bank Mandiri, securities firm Mandiri Sekuritas and financial firm Barclays Bank PLC ' was themed 'Indonesia: Pushing Structural Reform'. It brought together around 700 investors, 150 of which were from abroad.
Economist Jim O'Neill, among the speakers in the forum, applauded Indonesia's efforts to improve its economy by launching various mid- and long-term infrastructure projects, among other projects and plans.
Indonesia has in the past launched various infrastructure projects which not only included the development of several major ports and roads but also the development of economic enclaves in several parts of the country. But most of the projects have been delayed due to land acquisition problems and poor financing.
'Government spending is being allocated to things that are going to drive and influence Indonesia's growth rate in the long term, including infrastructure,' O'Neill, who coined the acronym BRICS (Brazil, Russia, India, China and South Africa), said.
The infrastructure projects, according to O'Neill, would help Indonesia achieve a higher status among other emerging economies. 'If every country were to achieve its growth potential, Indonesia could be the seventh largest economy in the world by 2050,' he added.
As reported before, the new administration has made infrastructure development one of its top priorities during its five-year tenure. In the revised 2015 state budget draft, infrastructure has received a higher budget allocation following the removal of the subsidy for the sales of the widely used Premium gasoline.
With the change, the government's spending for infrastructure development reaches Rp 281.1 trillion (US$22.5 billion), exceeding the Rp 158.4 trillion allocated for the energy subsidy budget.
This year's infrastructure figure is also the highest ever. There is a 66.3 percent increase in the amount if compared to last year's and it multiplied by almost 11 times if compared to 10 years ago.
'Lack of infrastructure has long been attributed as a major impediment of growth. It is now a priority. We are looking to finance it using state budget funds and by holding public-private partnerships,' Finance Minister Bambang Brodjonegoro told investors during the forum.
Part of the infrastructure projects include the development of various seaports, airports, roads and the construction of numerous power plants, which will be able to generate up to 35,000 megawatts of electricity.
However, according to O'Neill, Indonesia should consider more 'radical' infrastructure projects or ideas to bolster its position economically.
'If it presents them in a clear way, with a fiscal perspective that distinguishes current spending and investment spending, I think the markets will be reasonably content with that,' he said.
Barclays managing director David Fernandez voiced a similar opinion, saying that 'being radical' was just what Indonesia needed and that such an approach seemed possible with the new administration.
He argued that the inability to realize the projects posed a bigger challenge than the absence of funds. 'Realization in the government infrastructure segment has been quite low. We need radical execution of these projects,' he said.
Meanwhile, Mandiri president director Budi Gunadi Sadikin once again emphasized the importance of investors' participation in developing infrastructure projects across the country.
'Emerging countries such as China annually set 8 percent to 9 percent of gross domestic product for infrastructure spending,' he said.
According to Budi, if Indonesia were to apply the same ratio for its infrastructure spending, it would need around Rp 900 trillion per year.
However, combined with domestic private sector contribution, the government may only generate Rp 500 trillion, leaving a big gap of Rp 400 trillion.
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