Infrastructure Bank Unnecessary

JAKARTA (The Insider Stories) – The idea of a government-run bank focusing to on giving loans to the infrastructure sector is still unclear, while the Indonesian government encourages infrastructure funding sporadically from all possible sources. This leads to the speculation that the government is indeed not interested any longer in establishing a ‘national infrastructure bank’.

Wimboh Santoso, of Indonesia Financial Service Authority (FSA), admits that local banks have limits in the loans they can direct to the infrastructure sector. He said that banks make a prudent calculation due to the high-risk and long-term character of the infrastructure business. Nevertheless, he said the establishment of an infrastructure bank is still far to be realized.

“Currently, the important thing for us is how we handle existing funding. The infrastructure bank will eventually appear by itself,” he suggested.

The idea of a dedicated-purpose infrastructure bank came up three years ago when Finance Minister Bambang Brodjonegoro, who currently serves as National Development Planning Minister, proposed transforming state-owned infrastructure financing organ PT Sarana Multi Infrastruktur (SMI) into a national infrastructure bank.

For several years, the government has been strengthening the Company’s capital, until it is holding Rp47 trillion or $3.5 billion in assets. As time goes by, the government began to harbor doubts about the idea, amid concerns about limited state budget funds. The government meanwhile prefers to utilize idle long-term money, such as insurance and pension funds.

Wimboh added that local bank capacity to support infrastructure sector will tighten in coming years. Therefore, he will encourage the financial markets to play a more significant role as the source of funds for infrastructure. He pointed to the openness for international banks such as China Development Bank (CDB) that provide cheap loans, in order to spur Indonesia’s move to accelerate infrastructure development.

“We will keep monitoring debt from the loans, especially foreign loans in U.S dollars, as the whole country has to eventually pay these off,” he reminded everyone.

Meanwhile, Gatot Trihargo, Deputy of the Financial Services Business, Survey Services and Consultancy Services of the Ministry of SOE, said that the government is open to all funding, including external borrowing from international banks or multilateral agencies. The government position is to fully support cheap funding.

“We do really need to find funds that are long-term and economical, to build infrastructure, as we want to support the government in its infrastructure aspirations,” he said.

He pointed out that CDB offers loans at low interest, in affordable installments. Three largest banks, namely, PT Bank Rakyat Indonesia (IDX: BBRI), PT Bank Mandiri (IDX: BMRI), and PT Bank Negara Indonesia (IDX: BBNI) have secured a $20 billion commitment for loans from CDB to be distributed to the infrastructure sector.

With the business-to-business partnership between local banks and CDB, the government supports the effort, while keeping an eye on progress, to assure the public that funds are used prudently and properly.

Erwin Aksa, Indonesia Chamber of Commerce and Industry Deputy Chairman for Construction and Infrastructure, said that the government-run infrastructure bank is unnecessary for the business actors, since there are many funding options. He said the most important aspect is easy and cheap infrastructure financing.

“I think we already have various ways to finance infrastructure. There are banks, financing through the state budget, SMI, external borrowing, direct investments from international or local companies, etc. The essence, in my opinion, is that we do not need to go to the trouble of setting up a specific infrastructure bank,” he explained to The Insider Stories.

Erwin said the business actors have several choices in seeking funds from local banks, financial markets and external borrowing. Some big banks, such as Bank Mandiri and Bank Negara Indonesia, have the financial capacity to fund infrastructure. In addition, long-term funds like insurance or pension funds are also active in money markets, and ready to buy corporate bonds.

“I think the most important thing for the government is how to provide legal certainty to business actors, both SOE and private, so projects become bankable and can be financed by the banks,” he said.

He expects the government to allow more room for private investors to become involved in the infrastructure sector, apart from government-specific orders to SOEs. Private investor involvement is important to speed up the government aim to build more infrastructure. However the fact is that private investors prefer brownfield over greenfield projects.

“The reality is that many projects offered to investors are not bankable or attractive, nor large enough to attract interest,” said Aksa.

Also, investors face problems ranging from administrative issues, such as permits for land acquisition. In other words, he said, the government simply gives concessions, without further backup. The other issue is the location, where the project offered to investors is usually located in the outer islands or in remote, inaccessible areas.

Writing by Rahmat Fiansyah, Email: rahmat.fiansyah@theinsiderstories.com

 

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