President Joko Widodo with Central Java Governor Ganjar Pranowo - Photo: Special.

JAKARTA (TheInsiderStories) – President Joko Widodo urges local government leaders to show more creativity in managing their budgets, in the attempt to find new sources of financing for infrastructure projects; this comes with the realization of limited fiscal space.

Widodo has instructed regional heads to be more progressive in allocating and planning budgets, according to the needs of each region. He pointed out that budget planning should also be able to create jobs, in line with government’s focus on infrastructure development to boost economic growth.

“From the survey, we (government) acknowledge the strong demand for job creation. This is what people need: more jobs. Please do your best to contribute to our state budget,” Widodo said at the State Palace on Tuesday (25/10).

Indonesia is a unitary state with a decentralized system of regional government. The State budget is the preserve of the central government and the House of Representatives.

While, budgets at the sub-national or local government level are called ‘APBDs’. Currently there are 529 separate APBDs produced by local governments and approved by elected local consultative assemblies. APBDs also require central government (specifically the Ministry of Home Affairs) approval before implementation.

Based on Ministry of Finance data, on October 2017, Jakarta becomes regional with the highest savings by Rp25.7 trillion.
Source: Ministry of Finance – October 2017.

Chairman of the Indonesia Regional Government Association Syahrul Yasim Limpo admits managing budgets is quiet challenging for all local governors. At the same time, he said regional head should also focus on maintaining a proper business climate to attract investors, in order to finance regional development.

In recent years, the Indonesian government has placed a strong emphasis on infrastructure development, including toll roads, ports and railways, including emphasizing access to affordable housing and mains electricity.

Constrained by limited funds, Indonesia faces difficulties in realizing its grandly ambitious infrastructure development plans, far beyond the capabilities of the state budget. This situation has emphasized the urgent need for financial innovation.

“The state budget will simply be unable to solve the problems of regional needs,” Limpo said.

Taking into account such limitations, the private sector and state-owned enterprises are expected to play a greater role in the development of the country’s infrastructure projects.

Given that infrastructure projects normally require a huge volume of long-term financing, much attention has been recently paid to alternative financing schemes. Recently, through the Indonesia Committee for Acceleration of Priority Infrastructure Delivery, the government has been developing ‘blended finance’ schemes to be carried out to fulfill infrastructure fund needs.

Blended finance is a financing scheme sourced from grants collected from agencies like the World Bank to mobilize private capital for long-term investments.

Writing by Elisa Valenta, Email: elisa.valenta@theinsiderstories.com