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Jakarta Post

Lagging infrastructure clouds SBY'€™s rich economic legacy

  • Satria Sambijantoro

    The Jakarta Post

Jakarta   /   Wed, October 15, 2014   /  10:57 am
Lagging infrastructure clouds SBY'€™s rich economic legacy

Approximately 10 years ago, President Susilo Bambang Yudhoyono assumed leadership in an economy that was so indebted, with a state budget so insignificant, that it was effectively written off on the global investment destination list.

At that time, Indonesia was still limping in the aftermath of the 1997-1998 financial crisis: Government debts accounted for more than half of its gross domestic product (GDP), while economic growth averaged 3.7 percent in the previous five years. One-fifth of the country'€™s citizens still lived below the poverty line.

Indonesia'€™s economy was desperately open, but foreign investors were reluctant to invest their money, seeing more risks than prospects.

How quickly those times were forgotten, as within a 10-year time frame, Yudhoyono led Indonesia from being one of Asia'€™s sick economies to a glowing powerhouse that eventually received an investment grade status from global rating agencies.

Thanks to a stable political and investment climate that Yudhoyono promoted, the consumption-driven economy grew at about 6 percent for so long that global consulting groups labeled Indonesia as one of the most stable economies in the world.

Economic resilience increased as Indonesia'€™s foreign exchange reserves reached the current US$112 billion, compared to $36 billion 10 years ago. The country'€™s debt-to-GDP ratio declined to 26 percent, among the lowest in the world, while the number of people living in poverty was halved to 11 percent of the total population.

In terms of state finance, Indonesia today is so overwhelmed with money that regional officials are sometimes baffled on how to spend it. Total state income is estimated to exceed Rp 1.79 quadrillion ($147 billion) next year, compared to Rp 380 trillion in the 2005 state budget.

With the rapid economic expansion, Indonesia won a place in the G20, which comprises the 20 largest economies in the world. The recent accomplishments of Indonesia '€” notably the fact that the country survived the 2008 global financial crisis almost unscathed '€” is so respected by the international community that when top government officials speak at a forum like the G20, the world'€™s leaders are all ears, Yudhoyono has claimed.

'€œIndonesia has become one of the key players in the global economy,'€ the President said proudly in his state address in front of lawmakers in August. '€œWe are now engaged in global economic decision-making.'€

Despite his admirable economic achievements, Yudhoyono'€™s leadership has not been flawless. While the economy'€™s performance has met expectations, the country is seen to aim for less than its true potential, as his indecisive leadership has contributed to the lagging development of infrastructure projects here.

Yudhoyono led the resource-rich archipelago at a time when the global market saw a commodity boom, which pushed up exports and resulted in a series of current account surpluses.

During those times, however, the commander-in-chief was apparently lulled by his country'€™s impressive economic performance, so much so that he was seen to overlook reforms in the manufacturing sector while also neglecting the development of infrastructure.

Road length expanded only by 35 percent in the last 10 years while vehicle growth was 300 percent, according to data from the World Bank. Ndiamé Diop, World Bank lead economist for Indonesia, estimated that the country had lost about 1 percentage point of growth due to its infrastructure gap.

For Yudhoyono, few infrastructure projects can be boasted about to define his 10-year leadership, besides the Mandara highway, a 12-kilometer toll road that was constructed over Benoa Bay in Bali, and the new Kuala Namu International Airport in North Sumatra.

Other infrastructure projects were late in their development, or were not even constructed at all after lengthy deliberations. Currently facing an uncertain future is the Sunda Strait Bridge, a Rp 200 trillion project that has been discussed in numerous Cabinet meetings and was initially prepared to cement his legacy.

Among other unfinished or delayed projects are the 2,700-kilometer Trans Sumatra toll road, a link for major cities in Indonesia'€™s biggest westernmost island, the construction of which has been postponed until December. The construction of the new Kalibaru Port, an extension of Indonesia'€™s busiest port, Tanjung Priok Port in North Jakarta, is also far from finished.

Another part of Yudhoyono'€™s grand plan that attracted more attention than actual investment is the Master Plan for the Acceleration and Expansion of Indonesia'€™s Economic Development (MP3EI).

In the second quarter of this year, the realization of MP3EI projects only stood at Rp 15 trillion, or 3.2 percent of its yearly target of Rp 467 trillion, according to data from the Office of the Coordinating Economic Minister. President-elect Joko '€œJokowi'€ Widodo'€™s team has stated that the MP3EI will be given the axe.

 '€œProgress in economic reform and infrastructure has been rather sluggish,'€ commented Gundy Cahyadi, a DBS Bank economist.

'€œThere is the opinion that Yudhoyono didn'€™t do enough, especially during the period when there was huge capital inflow into the country,'€ he added.

Yudhoyono is also seen as disregarding the development of power plants, particularly in the last five years of his leadership, where he no longer had reform icon Jusuf Kalla as his sidekick.

In the first five years of his leadership, the Yudhoyono-Kalla duo succeeded in their ambition to build power plants with a 10,000-megawatt capacity.

However, the expansion of electricity penetration in Indonesia slowed significantly in the last five years of Yudhoyono'€™s tenure. A symbol of the failure of the government'€™s electricity projects was Southeast Asia'€™s biggest power plant project in in Batang, Central Java, with the Japanese-funded 2,000 MW plant facing land acquisition problems to this day.

As demand for electricity continues to exceed supply, it is estimated that the face-growing regions of Java and Bali will soon face a power crisis. State power company PT PLN warned recently that the two islands'€™ electricity reserve margin '€“ the measurement of excess electricity reserves that a system has during peak demand '€“ would fall to 18 percent, far lower than the ideal level of 30 percent.

'€œWhen I left [office], the construction of electricity projects was effectively neglected,'€ Kalla said in an economic seminar held by the World Bank last month.

'€œThis will force us to build new power plants to produce at least 25,000 MW to meet growing demand,'€ added Kalla, the vice president-elect.

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