T

he government must improve the nation’s infrastructure so the economy can reach its full growth potential of 8 percent a year, according to a Standard Chartered Bank report released on Monday.

Standard Chartered Bank economist Eric Sugandi said that over the last decade, Indonesia’s infrastructure, such as roads, toll roads and seaports, had been underdeveloped.

He said the according to data from the World Economic Forum, Indonesia was ranked below neighboring countries based on the quality of its infrastructure, including roads, railroads, seaports, air transportation and electricity supply.

Indonesia received 3.7 out of a maximum of 7 points, lower than Thailand, which received 4.9 points, or Malaysia, which received 5.5 points.

“Infrastructure development has depended heavily on the state budget, which has been insufficient, while participation from private investors has been far from what is needed,” he said during a press conference in Jakarta.

Eric said the government could increase private participation in financing infrastructure projects through, for example, equity financing and loan financing.

The bank said in its report that equity financing might include allotting equity to suppliers of raw materials for infrastructure projects.

Meanwhile, loan financing would secure bank loans against a project’s assets and cash flow.

Standard Chartered Bank’s senior economist, Fauzi Ichsan, said the government should take a series of measures to attract investors, including ensuring land conversion processes.

“Private investors also need certainty about how profitable their investments will be,” he said, citing the possibility of increasing toll fees for those interested in building toll roads as an example.

The National Development Planning Agency (Bappenas) previously estimated that the amount of private sector funds needed for transportation facilities was Rp 51.7 trillion (US$5.841 billion) a year, while electricity facilities needed Rp 41.2 trillion annually.

According to Eric, one of the most plausible scenarios was for the Indonesian economy to expand from 7.1 percent to 7.6 percent between 2011 and 2014 period if the private sector participation rate reached 50 percent of the Rp 51.7 trillion needed.

In this scenario, the government would also need to increase spending on transportation infrastructure by 20 percent a year with an assumption of 5 percent private investment in the electricity sector.

Another realistic scenario was for the economy to grow from 6.9 to 7.5 percent in the same period if state-owned electricity company PT PLN increased its annual capital expenditures by 20 percent and private sector participation reached 50 percent of the Rp 41.2 trillion needed, assuming that private investment in the transportation sector reached 7 percent.

Fauzi said that poor infrastructure also caused Indonesia’s inflation rate to be higher than other countries in the region.

Poor infrastructure also hindered the competitiveness of Indonesia’s manufacturing industry, he added.

“For example, our manufacturing industry cannot compete with other countries because their labor wages are lower,” he said.

“Our industry also cannot compete because they cannot depend on other costs such as lower electricity rates or lower transportation costs because efficient infrastructure does not exist.” (lnd)