Projects Should be Well Prepared
The construction of the MRT project on Jalan Sudirman, South Jakarta, Tuesday (20/3). The Asian Development Bank (ADB) has encouraged the development of infrastructure to maintain economic growth and to eradicate poverty.
JAKARTA, KOMPAS — The Asian Development Bank (ADB) has encouraged Indonesia to escalate the development of infrastructure to maintain the momentum of economic growth and to help eradicate poverty.
The ADB also mentions climate change as a factor that should be taken into account in the development of infrastructure.
Funding for infrastructure development does not only come from the state budget but also from the private sector.
In Indonesia, to attract the private sector to infrastructure development, the projects should be well prepared. Without good preparation, among others, such as a feasibility study, the private sector will not be interested in financing the projects.
These statements were made by ADB Vice President Bambang Susantono during his visit to Kompas in Jakarta Tuesday. "The private sector needs legal certainty and certainty in doing business. Not just in short-term investments but also in long-term investments in infrastructure projects," Bambang added.
Bambang was accompanied by ADB’s deputy chief economist, Juzhong Zhuang, the deputy country director of ADB Indonesia, Sona Shrestha, ADB’s director of economic analysis and operational support division Edimon Ginting and ADB’s climate change specialist, Michael Rattinger.
ADB estimates that the investment needed for infrastructure development in Indonesia in 2016-2020 will amount to US$70 billion a year. Based on the exchange rate of the Jakarta Interbank Rate Spot Dollar Rate (Jisdor) on Tuesday, the value is equivalent to Rp 931.56 trillion.
However, by taking into account climate change, the ADB has estimated that investment needed for infrastructure will reach $74 billion or Rp 984.792 trillion per year.
Meanwhile, the Indonesian government estimates the investment requirement for infrastructure in 2015-2019 will amount to $73 billion, or Rp 971.484 trillion a year. About $30 billion will come from the state budget, $16.2 billion from state- owned enterprises, and $26.6 billion from the private sector.
According to ADB data, Indonesia’s average investment in infrastructure development - from the central government budget and private sector - from 2010 to 2014 was about 2.6 percent of the gross domestic product (GDP). "The ideal number should be within the range of 5-7 percent of GDP," said Bambang.
Edimon added that deepening the financial market was one of the keys to attract more infrastructure investment. The development of infrastructure through non-budget financing is believed to encourage the inflow of investment into infrastructure projects.
Climate change
During a seminar entitled “Meeting Asia\'s Infrastructure Needs” in Jakarta on Tuesday, Juzhong Zhuang explained that the region needed to invest at least $26 trillion during the period of 2016-2030, or $1.7 trillion a year. Investment in the infrastructure sector includes the costs of mitigation and adaptation to climate change.
The estimated $1.7 trillion in needed investment is more than double the ADB’s projection in 2009, which reached $750 billion. Climate change is a major factor contributing to the increase.
"If it does not take into account the cost of climate change, the Asian region’s needed investment is $22.6 trillion or $1.5 trillion a year," he said.
Currently, infrastructure investment in the Asian region is only about $881 billion a year. The government in each Asian country, added Juzhong, was expected to meet 40 percent of the investment requirement and the rest was expected from the private sector. Therefore, the private sector needs to increase its investment from $63 billion a year to $250 billion a year in 2016-2030.
"In order to be able to fulfill the financing needs, fiscal reform should be carried out, an improvement of the private sector role and the deepening of the capital markets. They should be also supported with a good development plan, regulatory reform and ease of investing," Juzhong said.
National Development Planning Agency (Bappenas) deputy for infrastructure development Wismana Adi Suryabrata said the government was committed to continuing the priority agenda for the next five years, especially in the infrastructure sector. On the financing side, the government would prioritize and use the state budget more effectively to realize infrastructure construction.
However, non-budget financing would continue to be encouraged, especially through private investment.
"We will also continue to encourage financing through the capital market and equity. We seek to obtain long-term investment from pension funds and insurance companies," he said.
Sona Shrestha said the ADB provided a loan of $2 billion to the Indonesian government this year. During the next five years, the ADB’s loans to Indonesia will reach $10 billion.
(HEN/NAD/AHA/IDR/BOY)
