JP/Ruslan Sangaji

Indonesia is one of the world’s most disaster-prone areas and is at risk of multiple hazards. Located in the seismically active Ring of Fire, the country experiences frequent earthquakes, volcanic eruptions and tsunamis. It is also prone to other disasters, such as floods, landslides and forest fires.

Though Indonesia should be prepared, responsive, alert and resilient in facing any disaster, it appears that Indonesia, especially the government alone, cannot meet the constantly growing demand for services and resources needed for disaster prevention, preparedness, mitigation, response and recovery. In fact, there is a need to look for support from other sectors of society, and for this, greater private sector involvement through a well-established public-private partnership (PPP) in reducing disaster risk is urgently needed.

Major natural disasters can and do have severe adverse economic impacts. Three large-scale natural disasters in Lombok in West Nusa Tenggara, Palu in Central Sulawesi and the Sunda Strait last year killed more than 5,840 people and economic losses reportedly reached Rp 38 trillion (US$2.7 billion), more than 1 percent of the total state expenditure in 2018.

Moreover, the rehabilitation and reconstruction costs for the first wave of earthquakes that hit Maluku are estimated at Rp 6.4 billion. This estimation has not accounted for the budget required to rebuild more than 5,000 residential and nonresidential properties as well as the disruption to the economy.

Budgetary pressures driven by disasters have both narrowly fiscal short-term effects and wider long-term development consequences. At present, Indonesia relies heavily on the state budget to finance post-disaster rehabilitation and reconstruction efforts.

According to the Global Facility for Disaster Reduction and Recovery (GFDRR), the Indonesian government has spent $300 to $500 million per year on post-disaster reconstruction. The cost during large-scale disaster years amounts to 0.3 percent of the country’s gross domestic product (GDP) and as high as 45 percent of the provincial GDP.

That amount, however, is insufficient, given the gigantic scale of the post-disaster reconstruction needs. The state budget limitation has been considered as the main factor causing the slow progress of post-disaster rehabilitation and reconstruction across disaster-affected areas in Indonesia.

Indonesia, therefore, needs to find solutions to ease the burden on its state budget and to establish a good system to protect its assets and to accelerate the recovery of affected communities. Appropriate disaster risk management strategies engaging the private sector are critical in facing future disasters.

Private sector involvement and innovation in disaster risk management is not only good for the government and its budget but also for the business itself. Creating risk-informed decisions and investment can help the private sector limit disaster losses, maintain business stability, reduce uncertainty and provide new business opportunities.

Furthermore, disaster risk management by the private sector and PPP might have larger socioeconomic advantages, such as moderated uncertainty in economic outlook and growth estimations, as well as reduced risks to life and personal properties.

Through PPP in disaster risk management, both the public and private sectors can benefit by pooling their financial resources, know-how and expertise to enhance the delivery of basic goods and services to all people during disasters.

To establish an appropriate and sustainable PPP in disaster risk management, the government needs to work together with the private sector and all societies. Cooperation between the government and the private sector in reducing disaster risks can take various forms, including awareness and advocacy partnerships, disaster preparedness partnerships and social investment partnerships.

To materialize those partnerships, the government should develop a regulatory framework that can facilitate such PPP. For this, the government should define the scope of the businesses, identify priorities, set the targets and specify the standard for the PPP management so that it can enhance hazard mitigation, preparedness, response and recovery programs.

The government should also increase public awareness and their apparatus at the national and regional level, regarding disaster management projects expected by the government and businesses in the PPP arrangements. This is crucial to provide information that ensures programs can attain their objectives and targeted participants.

Last, the government together with private actors, should find a way to assure larger and more sustainable financing sources, which need to be available on a timely basis. The financing schemes should be able to provide liquidity to finance both immediate needs and long-term reconstruction and recovery. For this, innovative financial markets can help though disaster insurances and bonds, financial derivatives and other risk-financing and risk-sharing mechanisms.

Whatever the alternative risk hazard management strategies and the disaster financing schemes, it is unreasonable for a disaster-prone country like Indonesia to take for granted that the government alone will always be able to provide services and resources required for risk disaster management.

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Researcher at Economics Department of the Centre for Strategic and International Studies, Jakarta

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