Will Indonesia’s infrastructure bottleneck ever be unclogged?

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Finally, some progress in Indonesian infrastructure – but familiar battles remain.

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Euromoney was in Jakarta in August when a local colleague spotted one of the city’s rapid mass transit trains, currently undergoing final testing, for the first time. “It’s here!” she shouted, jumping out of the taxi to take a photo. “It’s finally here!” Joy would not be too strong a word.

Indonesians have been waiting a long time for decent infrastructure. So have foreign investors. It wasn’t hard for our friend to jump out of that taxi; it hadn’t moved in 20 minutes. 

It is not yet clear if the new transit system, due to open next year, will make the two-hour trips from the airport (or one-hour trips around the corner) a thing of the past. But at least there is finally some tangible evidence of progress – just in time for an election.

Infrastruture development

As the World Bank and IMF caravan prepares to roll into Bali for its annual meeting, all the talk is of infrastructure development, as it has been for as long as anyone can remember. Delegates have been wondering for months how the island’s roads and venues will cope. 

Since at least the 1980s, the mantra about Indonesia has been: imagine how it could be, if not for the infrastructure bottleneck. 

No economic report is complete without mentioning it. When Moody’s praises president Joko Widodo for his commitment to fiscal discipline, seeking to narrow the fiscal deficit to 1.8% of GDP next year from 2.1% this, it immediately worries about what this means for infrastructure spending (projected to rise only 2.5% year on year in 2019, compared with 8.2% in 2018). 

Perhaps the private sector, or state-owned enterprises, or just off-budget sources of funds will fill this gap. The point is that more than any other country in Asia, the infrastructure subject pervades absolutely any economic or market discussion. It was central to Jokowi’s pitch for office in the first place, and progress in this area will be central to winning another term in 2019.

Red tape

Bali is an interesting place to see the problem writ large. As delegates leave the airport they will take to the Bali Mandara Toll Road, a 12.7 kilometre road built over the sea. It is, it turns out, considerably faster and easier to build a road over the sea than on the land, because the sea is the only place you’re not going to be beset by land ownership disputes. 

Another place is Bandung, which by now should be showing the fruits of two years of construction of a $6 billion high-speed rail link, a signature Chinese-led Belt and Road project. In fact, only in June this year was China Railway Corp able to announce significant progress on licensing, financing and land acquisition. There are task forces, new laws, promises of arbitration, but red tape still appears to be the enemy of development.

Jokowi is not short of ambition. The total pipeline of his infrastructure plan was stated at $327 billion of projects earlier this year and although some have since been scrapped, including railways in South Sumatra and East Kalimantan, a government list still refers to 222 “strategic projects”. There are 69 promised roads, 51 dams and 10 ports; there are sea embankments, sanitation projects and special economic zones. 

And it’s true that infrastructure takes time, far longer than a typical election cycle. But Indonesia desperately needs to show progress – which is why Jakarta citizens jump out of taxis to photograph a train.