The massive capital injections, which accounts about 4 percent of the total of the draft 2022 state budget (RAPBN 2022), is pending final approval by the House of Representatives.

The proposed state capital injections amount to an additional Rp 33 trillion to top up 2021 spending and another Rp 72 trillion for 2022.

According to data from the State-Owned Enterprises (SOEs) Ministry, more than 70 percent of the funds are earmarked for construction SOEs involved in toll road projects, namely Rp 50.35 trillion for PT Hutama Karya, Rp 10.9 trillion for PT Waskita Karya and Rp 2 trillion each for PT Adhi Karya and PT Perumnas.

State-owned railway company PT Kereta Api Indonesia (KAI) is to be given Rp 11.1 trillion for the Greater Jakarta LRT project and the Jakarta-Bandung high-speed railway project, even though a presidential regulation stipulates that the latter should not involve any state funding.

The ministry’s data show that some SOEs are not in great shape after their 2020 revenues dropped by up to 40 percent while COVID-19 ravaged the economy.

Waskita Karya’s debt reached more than Rp 94 trillion this year, while its ability to service loans is hampered by a net loss of Rp 7 trillion it sustained in 2020.

Hutama Karya reported earlier this year that it faced a debt mountain of Rp 71 trillion while it still had to carry out phase one construction worth Rp 68.1 trillion worth on the trans-Sumatra toll road in 2021-2024.

Read also: Waskita signs major loan restructuring deal

“This is partly because the government was so ambitious with its infrastructure projects but had not looked closely at the SOEs’ capabilities or their financial conditions,” Andry Satrio Nugroho, who heads the Center of Industry, Trade and Investment at the Institute for Development of Economics and Finance (Indef), told The Jakarta Post on Thursday.

Infrastructure development is the cornerstone of President Joko Widodo’s economic policy. According to July 2020 data from the Public Works and Housing Ministry, the government plans to build 2,724 kilometers of toll roads in 2020-2024 to add to the 2,093 km it built in 1978-2019. The government also plans to build new airports and seaports across the archipelago.

The government was unable to allocate enough budgetary funds to realize the ambitious projects, said Andry, prompting it to turn to SOEs to do its bidding.

Center for Reform on Economics (CORE) Indonesia analyst Yusuf Rendy Manilet told the Post on Thursday that state capital injections were “inevitable” as the government continued to pursue infrastructure development and sought to finish the projects on time.

Just this February, the government set up the sovereign wealth fund, the Indonesia Investment Authority (INA), to reduce its reliance on funding from SOEs that were already burdened with mounting debts. Still in its early days, however, the INA is as yet unable to shoulder much of the financial burden to make the country's infrastructure dreams come true.

In June, the INA announced a plan to establish an infrastructure platform to purchase toll roads from debt-laden SOEs, hoping to ease their burden and allow them to invest in new toll roads, but that plan is still a work in progress.

“Therefore, the state capital injections were inevitable. The state budget, once again, will have to do the heavy lifting,” Yusuf said.

Read also: INA to buy into toll roads of debt-laden SOEs

Meanwhile, University of Indonesia (UI) economist Ninasapti Triaswati questioned the rationale behind the large state capital injections. Speaking to the Post also on Thursday, she opined that the government should prioritize the country’s pandemic response rather than its infrastructure ambitions.

Ninasapti pointed out that most of the state budget was financed by debt and should therefore be used accordingly.

“[The state-capital injections] will be burdensome [for the state budget]. At this point, health care is much more important than infrastructure,” she said.

“Infrastructure [spending] should be the first thing to be cut in the budget during the pandemic,” she added.

Ninasapti noted that there was no guarantee that the capital injections would solve the problem, and expressed concern that the government might be compelled to provide continuous capital as funding problems kept arising.

Instead, she suggested that the government involve the Development Finance Comptroller (BPKP) and the Supreme Audit Agency (BPK) to conduct due diligence into the apparent need for state capital injections.

“Saving SOEs is important, but it is absolutely crucial to evaluate them first. Why do they need that much? Is it reasonable? To be honest, we must be wary of this kind of policy,” she said.