Indonesia needs about $500bn over the next five years to build roads, ports and bridges and should remove hurdles to encourage greater private sector investment, World Bank president Jim Yong Kim said.
The government should set aside 4.7% of the gross domestic product by 2020 to build infrastructure from about 2% now, Kim said at a conference in Jakarta yesterday. Southeast Asia’s largest economy should lower its reliance on state-owned companies to undertake projects and instead tap the private sector and foreign funds to finance them, he said.
President Joko Widodo has increased government spending on infrastructure to more than 60% of the annual budget since taking over in 2014, tying his re-election prospects to the programme meant to improve the living standards of the poor in the world’s fourth-most populous country.
The over-dependence on state companies which enjoy cheaper financing and government guarantees to build infrastructure “essentially pushes out private sector investors who cannot compete,” Kim said.
There’s “nothing wrong with having a robust state-owned enterprises sector,” Kim said. “But there tends to be problems when it curtails competition in the market and companies aren’t measured based on performance.”
Indonesia was “left behind” in infrastructure development in the wake of the Asian financial crisis, which burdened the government with significant debt, Finance Minister Sri Mulyani Indrawati said at the conference. With a stable economy and low debt-to-GDP-ratio, it was time for the nation to catch up, she said.
The government has announced more than 240 projects at the national and regional levels and the private sector can play a critical role in implementing them, Indrawati said. The $500bn investment Indonesia needs to finance its infrastructure is “impossible for the government and state owned enterprises to do themselves,” she said. “I challenge the private sector to come to us. We will make space.”




Related Story