Infrastructure in Indonesia; Jakarta-Bandung High-Speed Train Project Needs More Time & Money
On 30 September 2021 Indonesia’s House of Representatives (Dewan Perwakilan Rakyat, DPR) approved the 2022 State Budget (Anggaran Pendapatan dan Belanja Negara, APBN) that had previously been proposed by the cabinet. And with 14.2 percent of total government spending being reserved for infrastructure development in the 2022 State Budget, the Indonesian government confirms that it remains committed to much-needed infrastructure development.
Head of the Fiscal Policy Agency (BKF) Febrio Kacaribu said the 2022 infrastructure budget will be used for a wide range of projects, including property, drinking water, waste water treatment, irrigation, gas network (supplying to households), railway, (toll) roads, bridges, base transceiver stations (BTS), and airports.
On various earlier occasions we have zoomed in on how the lack of infrastructure development across Indonesia (both hard and soft infrastructure) undermines the country’s economic and social development.
For example, well-developed connectivity (by land, sea, air or digital technology) is crucial for the nurturing of an efficient economy as it allows logistics costs (the costs incurred when moving goods) to be low. This subsequently makes businesses more competitive, allows lower retail prices, and attracts (foreign) investment. Therefore, overall, it encourages economic growth. In that respect, it is worth pointing out that transportation costs are the largest component of logistics costs in Indonesia, hence inadequate infrastructure has a big negative impact by raising transportation costs, hence pushing up logistics costs accordingly.
Fortunately, reform-minded Indonesian President Joko Widodo – who took office in late 2014 – recognized this structural bottleneck within the Indonesian economy and responded by raising the government’s infrastructure budget significantly after decades of public underinvestment in combination with very limited interest from the private sector players to engage in long-term, capital-intensive infrastructure development projects (Indonesia’s complex and uncertain investment environment is part of the reason why investors remain hesitant) caused rising trouble. Moreover, over the same period, national economic expansion was in fact robust, implying an increase in the movement of goods and people (reflected in, for example, the record high car sales streak in 2009-2013). When sharply accelerating economic growth is not met by adequate infrastructure expansion, it leads to blockages (literally in the case of traffic on the streets of the bigger cities in Indonesia).
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This is the introduction to the article that is published in our October 2021 report. You can order the report by sending an email to info@indonesia-investments.com or a message to +62.882.9875.1125 (including WhatsApp).
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