T

he Indonesian government must eradicate corrupt practices and improve transparency in order to attract more foreign participation in infrastructure projects, a senior official of a major Japanese financial institution has said.

“With a population of more than 230 million, Indonesia is a very promising market. To develop this large market properly for long term sustainability, the country needs to accelerate its infrastructure development,” Japan Bank for International Cooperation (JBIC) chief executive officer Hiroshi Watanabe said during a press conference at the Finance Ministry in Jakarta on Friday.

Watanabe listed at least four requirements that have to be met by the government in order to be able to lure foreign investment in the country’s infrastructure projects.

“They are; an assurance from the government that project development will be conducted efficiently; transparency; the eradication of corruption and nepotism; and the projects must be environmentally friendly,” he said.

President Susilo Bambang Yudhoyono has issued an ambitious blueprint called the Acceleration and Expansion of Indonesia’s Economic Development Master Plan (MP3EI) in an effort to make Indonesia one of the top 10 global
economies by 2025.

Under the masterplan, the government plans to develop infrastructure to improve connectivity throughout the archipelago.

The development is to take place in six economic corridors throughout the country — Sumatra, Kalimantan, Java, Sulawesi, Bali and Nusa Tenggara, and Papua-Maluku.

The MP3EI program requires more than Rp 3,000 trillion (US$313.6 billion), far higher than Indonesia’s state budget capacity.

Therefore, the government needs to cooperate with the private sector using public-private partnerships (PPPs) to fund infrastructure development needs.

Deputy Finance Minister Mahendra Siregar, who also spoke during the conference, admitted that the government had initially started on the wrong foot on infrastructure development.

“We used to think that financing was the most important factor in accelerating our infrastructure development. After a while, we realized that in the context of establishing solid PPPs, we could not afford to overlook the importance of good governance in project management,” Mahendra said.

Apart from improving good governance within the administration, the government must also be able to improve policies on social and political issues, such as mounting energy subsidies as well as issues of legal uncertainty,
Watanabe said.

“Mounting energy subsidies and legal uncertainties can be considered risks by investors that must be properly handled and managed by the Indonesian government. The upcoming 2014 general election also represents a great risk of potential major policy changes,” Watanabe said.

“Therefore, it is important for the current government under President Yudhoyono to minimize the potential policy discontinuity should the regime change. Investors need to be assured that government policies will continue even when the administration changes,” he added.