One of urban infrastructure development Light Rail Transit (LRT) in Great Area of Jakarta. Photo: Special

JAKARTA (TheInsiderStories) – One factor of Indonesian economy inhibition is the slow pace of infrastructure development. But since being elected as president, President Joko Widodo has put the development the sector as a common platform for Indonesia’s vision.

Ahead of his five years, the government focused on building infrastructure to reduce logistics costs. Because the high cost of distribution of goods and services between regions has hampered the national economic growth rate.

The incessant infrastructure development carried out by the government is one of the factors that drive the annual inflation decline from 3.6 percent in 2017 to 3.13 percent in 2018.

With infrastructure development, the central government expenditure the flow of goods to the production center thereby reducing logistics costs. But, it is not concentrated in urban areas.

However, the decline proves that the government can keep inflation from uncertainty, especially inflation from the volatile foods and core inflation.

The increase in world oil prices was predicted to affect inflation. Inflation throughout 2018 which amounted to 3.13% was below the 3.5 percent target in the 2015-2019 National Medium-Term Development Plan.

However, the Global Competitiveness Index 2018 data shows that Indonesia’ infrastructure competitiveness index in 2017-2018 actually dropped to 52 levels, from the previous period at position 41.

The Indonesian Logistics and Forwarder Association also stated that infrastructure only cut 2.5 percent of logistic costs. The association research states that logistics costs take up 23.5 percent of the total Gross Domestic Product (GDP) in 2017.

But be optimistic, because since last year, several infrastructure projects that began construction have been used. One of them is the Trans Java toll road segment. It means, that the logistics costs have begun cut back along with the operation of the distribution flow.

When the State is weak infrastructure, it means that the country’s economy is running in a very inefficient manner. Logistics costs are very high, leading to companies and businesses that lack foreign competitiveness and investment.

Foreign investors are concerns to invest, but hindered by uncertain manufacturing facilities or very high transportation costs. In fact, Indonesia is often plagued by power outages, even though this country has been declared to have abundant energy resources.

According to data from the Indonesian Chamber of Commerce, the company’s total expenditure was 17 percent absorbed by logistics costs. Whereas, in the others Southeast Asia economies, this figure is only under ten percent.

President Widodo is considered quite intelligent when appointing a number of state-owned companies (SOEs) as major infrastructure project developers. These companies usually have more assets than private companies and are also able to collect additional funds from banks more easily.

There is also an increase in capital injections from the state budget in several state-owned construction companies. Another new tactic is to hold a tender in the year before infrastructure projects are expected to begin construction.

Based on the national development plan, a total of Rp 4,796 trillion (US$340.14 billion) needed to achieve the infrastructure development target. However, the central and regional governments can only contribute 41 percent for financing, while state-owned companies can only contribute up to 22 percent. While 37 percent of the funds needed (around Rp1.752 trillion) must come from the private sector.

However, the problem is that the private sector is not too enthusiastic to take commitments on long-term, capital intensive projects, especially, if the investment climate is not optimal and health.

Candidates for Vice President Sandiaga Salahuddin Uno in his campaign said to include the private sector in infrastructure development if win in the upcoming Presidential Election. In his analysis, used World Bank data, which had submitted reports that planning and implementation of infrastructure development in Indonesia were not well done.

But the World Bank has provided clarification regarding the study that the report was completed in 2014 before current regime was installed. It means, that infrastructure development before Widodo regime already troubled.

Therefore, the share of capital in infrastructure development still includes the state sector, the private sector and the regional government.

And the most important is human resources understanding related to existing infrastructure development. If seen as an effort of neoliberalism to control national economic assets, it will be bad. But if it is really for equity and economic distribution of the peoples, then the development is seen as positive side.

So far, the government must also pay attention to the development of rural infrastructure because most of the Indonesian people live in the countryside. Therefore, the development should not be centered in urban areas, but rural infrastructure is urgent to be improved.

Written by Daniel Deha, Email: theinsiderstories@gmail.com