INDONESIA NEED US$65 BILLION TO BUILD INFRASTUCTURE

The Government of Indonesia (GOI) targets to chalk up an economic growth of 6% per annum, the target could be reaching with the support of adequate infrastructure to facilitate economic development.

Around US$65 billion will be needed to finance several larger infrastructure projects in the country in 2005-2009. Around 38% or US$25 billion of the fund are expected to come from the state budget, US$14 billion from local banks, insurance and pension fund companies, US$10 billion in multilateral and bilateral loans, US$16 billion in investment by the private sector including foreign investors.

The GOI has invited investor to Infrastructure Summits in 2005 and 2006 in Jakarta and offered large infrastructure projects.
The government offered 91 projects valued at US$22.5 billion in 2005 but only five project shave been in the process of construction, 15 projects are to be implemented and 28 in the stage of preparation for tender.


Various problems still come in the way of realizing the projects. The progress made in stabilizing the macro economic indicators including lower inflation rate and credit interest rates gave hope of bringing the projects into reality.

Indonesian Competitiveness Declines

The competitiveness of the country in attracting foreign investors has declined as a result of the infrastructure being not adequately available, whereas the country badly needs foreign investment to boost the economic growth.

Until early 1997, the country's infrastructure grew steadily, investment in infrastructure contributed 6% to the country GDP every year. In the past several years, quantitavely, the country's infrastructure grew sluggishly contributed only 2% to the GDP and qualitatively the sector has contracted.

Time to Build Infrastructure

The end of 2006 was marked with improvement of the macro economic indicators such as fairly strong 5.6% economic growth, lower inflation rate to 8% and Bank Indonesia (Central Bank) benchmark interest rate to 9.75% and the increase in the Jakarta
Composite Share Price Index to a record high of 1,800 points and export value to an all time record of around US$100 billion.
No less important is the appreciation of the rupiah to reach the level of 9,100 per US dollar with foreign exchange reserve exceeding US$40 billion. All the indicators are encouraging contributing to stronger economic fundamentals.

However, the real sector has remained in the doldrums. In the first three quarters, the manufacturing sector grew only by 4.11% down from a growth rate of 6% in 2006or falling far short of target set by the industry minister. The slow revival of the real sector diminished the significance of the real sector is feared to undermine the economic growth in mid and long terms.

The improvement of the macro economic condition provides a good momentum for the government to boost development of infrastructure to attract foreign direct investment to the country.

In addition, the government need remove various other bottlenecks hampering the private sector for taking part in infrastructure development. The government should launch major deregulation measures such as in infrastructure management, land clearing, tariff systems, and tax incentives. Participation of the private sector is absolutely needed with the poor financial condition of the government.