Infrastructure Development Indonesia: New Funding Schemes Required
The government of Indonesia needs to be more aggressive and innovative to find new sources to fund its ambitious infrastructure development program. To achieve its infrastructure targets, the government will need to find ways to entice the private sector because public funds are limited. So far, however, the private sector is hesitant to engage in capital-intensive and long-term investment in a country where the investment climate is not optimal.
Indonesia's National Medium-Term Development Plan 2015-2019 (RPJMN 2015-2019), the third phase of the National Long-Term Development Plan 2005-2025 (RPJPN 2005-2025), states that Indonesia requires IDR 4,796.2 trillion (approx. USD $360.6 billion) worth of infrastructure investment in the 2015-2019 period. However, the central and regional government budgets can only contribute 41.2 percent (IDR 1,978.6 trillion) of the total, while Indonesia's state-owned enterprises (SOE) can only contribute 22.2 percent (IDR 1,066.2 trillion), implying the remaining 36.5 percent (IDR 1,751.4 trillion) needs to originate from the private sector.
The government is particularly eager to boost infrastructure development ahead of the 2018 Asian Games. For example, the light rail transit (LRT) - in and around Jakarta - is one of the projects that is being sped up in order to be completed before the start of the Asian Games.
However, Kennedy Simanjuntak, Development Funding Deputy at the National Development Planning Board (Bappenas), informed that investment realization of the government (in terms of infrastructure spending) has been disappointing over the past two years. While the government (central plus regional governments) are envisaged to spend IDR 1,978.6 trillion on infrastructure development in the 2015-2019 period, actual investment realization of these authorities was only IDR 606 trillion (approx. USD $45.6 billion) in 2015 and 2016 (together). Simanjuntak commented on this issue that it is difficult for the government to meet its spending targets in times of volatile oil prices (especially when they are weakening) as well as rapidly changing perceptions about global economic growth.
To boost the availability of funds for Indonesia's infrastructure development, Simanjuntak says the government is tapping new financial schemes. Examples are availability payment (in the Palapa Ring project), the viability gap fund (in the Umbulan Drinking Water project), and the success fee scheme (in the Batang Power Plant project).
Under the Joko Widodo administration the role of SOEs toward infrastructure development has been enlarged to offset limited interest from the private sector. Besides capital injections (from the state budget) into specific SOEs, these companies have also been issuing bonds to collect funds to finance infrastructure projects.
Read more: Analysis of Infrastructure Development in Indonesia
Meanwhile, the public-private partnership scheme has not been fruitful. The main issue is that private investors are generally not too interested to engage in capital-intensive and long-term investment, particularly when the investment climate is not optimal. Indonesia, although improving, does not rank high on the World Bank's ease of doing business list due to matters including red tape and high logistics costs. Meanwhile, the land acquisition process remains a major obstacle that can delay the start of projects by various years (if not canceled altogether). Moreover, for big infrastructure projects government backing is important. However, if the composition of the government is revised (usually by general elections), then government support for a specific project can suddenly be withdrawn.
Envisaged Infrastructure Development Funding Indonesia (RPJMN 2015-2019):
| Origin | Investment (in IDR trillion) |
% of total |
| State Budget (APBN) | 1,433.6 | 29.88% |
| Regional Budget (APBD) | 545.0 | 11.37% |
| State-Owned Enterprises | 1,066.2 | 22.23% |
| Private Sector | 1,751.4 | 36.52% |
| Total | 4,796.2 | 100.0% |
Source: Bisnis Indonesia