Indonesia as a guide to infra development

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Ben D. Kritz

Ben D. Kritz

AS the Philippine legislature begins parsing next year’s record P3.35 trillion budget, those whose job it will be to make the best use of the funds it provides for infrastructure spending might learn a few lessons from our neighbor and friendly rival Indonesia, whose government is similarly bent on greatly improving that country’s infrastructure.

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Both countries are allocating substantial sums of money in their budgets for infrastructure development; the Philippines’ budget sets aside P860.7 billion (about $18.5 billion), while Indonesia’s budget has earmarked this year $22 billion. Some $7.4 billion of the Indonesian allocation went to its Ministry of Public Works and Housing.

The Philippines’ proposed 2017 allocation for the Department of Public Works and Highways (DPWH) amounts to some $9.86 billion (P458.61 billion), a third larger than Indonesia’s; while the Department of Transportation (DOTr) is to get a separate allocation of over $1.92 billion (P55.48 billion).

Indonesia’s president, Joko Widodo, is considered a bit of an outlier, like our own President Rodrigo Duterte, as politicians go. He was also a mayor—Governor of Jakarta, specifically—which evidently gives one a certain practicality of outlook in politics, and has the added advantage of being an experienced businessman. Not really being part of the political establishment when they were vaulted into their countries’ respective highest offices, both Jokowi and Digong grasped the axiom that a nation’s economic growth rests on a foundation of efficient infrastructure much more quickly than their predecessors or political rivals. While the Philippines has not really fixed a firm goal, Jokowi, ever the businessman, has: Indonesia should have annual GDP growth of 7 percent (it was 4.8 percent last year) by 2020, and to help achieve that, the country will need to spend at least $400 billion during his current term in office (which ends in 2019).

Where Indonesia has run into trouble with its infrastructure development aims is in actually getting projects off the ground in terms of disbursing funding, land acquisition and right-of-way issues, and solving the contradictions between local and national rules and regulations when it comes to matters such as permits.

One good example is the planned Jakarta-Bandung high-speed rail project, which was awarded to a consortium of Chinese investors and Indonesia state-owned enterprises last October after fierce competition between China and Japan for the bid award. The project, which was supposed to have begun construction by now, has had its start postponed until at least January, due to delays in getting permits from concerned local governments along the planned route, and difficulty in acquiring some parcels of land needed.

The delays to the rail project are a bit worrisome, because using the state-owned enterprises as the local consortium partner was conceived as one way to speed up project roll-out for infrastructure projects in general. Part of the budget for this year was distributed to SOEs to allow them to pursue certain developments, the rationale being that it was a sort of ‘pump-priming’—with some more financial resources in hand, the SOEs could more easily tap outside sources of funding (which as a rule become available faster than funds through Indonesia’s bloated and slow-moving bureaucracy), and that would get projects moving faster. By comparison, Indonesia’s MPWH reported it had only distributed about 27 percent of this year’s infrastructure budget as of the end of July, and was unlikely to be able to spend it all by year-end, even though that unimpressive figure represented a marked improvement over last year’s performance.

The new approach hasn’t helped, however, because other bureaucratic improvements need to be made. In terms of land acquisition, Indonesia launched a new program whereby private developers (e.g., groups like the rail consortium) could spend their own funds to acquire land for right-of-way, and then be refunded by the government; the first few projects tapping the program, however, have not recovered their costs, which has simply discouraged purely private investors from taking up offered projects, and caused the SOEs to sit on their infrastructure funds until the situation improves.

Our government here should make the most of the object lessons our neighbor Indonesia is providing with its struggle to carry out its infrastructure development aims. Having the ambition and the financial resources are not enough to actually close the gap from vision to reality if the processes in between are not assessed and improved. Unfortunately, that is the sort of unsexy, technocratic work politically minded agencies try to avoid having take up much of their limited time in office, and the results of that kind of thinking are all around us—or rather, obvious from the absence of things like functional high-capacity commuter rail lines, well-maintained and efficient airports, and roads that are better-suited for actual motor vehicles rather than horses.

ben.kritz@manilatimes.net

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