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NEWS UPDATES Asean Affairs   27  December 2010

Indonesia targets investors for infrastructure

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The Indonesian government looks to accelerate infrastructure development across the country in 2011.

The sense of urgency within President Susilo Bambang Yudhoyono's government to ease the growing bottlenecks that are threatening to suffocate economic growth is palpable.

While the last five years have been marked by insufficient funds from the state budget, poor policies, inadequate support from the banking sector and reluctance of the private sector to invest in long-term infrastructure projects, the next five years could herald a new beginning.

With greater government commitment in the form of budget allocation and new regulations, Indonesia is expected to implement the infrastructure development agenda at a faster pace beginning in 2011.

The allocation for infrastructure development derived from the state budget (APBN) has increased significantly to Rp 126 trillion ($14 billion) for 2011, the largest allocation in six years, according to Deputy Finance Minister Anny Ratnawaty.

"The budget for infrastructure development has increased from Rp 108 trillion in 2010 to Rp 126 trillion in 2011 under the government-private sector partnership scheme," she said.

Government Regulations Nos. 66 and 75 of 2008 created an infrastructure financing holding company called Sarana Multi Infrastructure Pesero (SMI). SMI manages partnerships with the private sector or multilateral finance institutions. It is in cooperation with the Asian Development Bank and the World Bank.

SMI also channels funds via Indonesian Infrastructure Finance (IIF), which now holds Rp 600 billion from SMI, Rp 400 billion from the ADB, Rp 400 billion from the World Bank's International Finance Corporation and Rp 200 billion from German finance institution DEG.

The National Planning Board (Bappenas) and the Investment Coordinating Board have been assigned to package government projects to make them more attractive to investors, while the Office of the Coordinating Minister for the Economy is focused on 17 priority infrastructure sectors.

"The money that comes from the state budget will be synergized with the money obtained from the non-state budget finance institutions. We look forward to the completion of priority projects, among others, the construction of the 2,792 kilometer-long Sumatra, Java, Bali, Kalimantan, Sulawesi, NTT, NTB and Papua highways," said Hatta Rajasa, coordinating minister for the economy.

Economist Ichsanuddin Noorsy said that despite the air of optimism, he sees problems ahead due to uncertainty in the legislation process of the Land Acquisition Law.

"It will create problems as land acquisition relates to people's aspirations and human rights as well. The problems surrounding the Soekarno-Hatta International Airport is a perfect example," he said. "Although the airport was completed many years back, people still claim the land today."

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