No Private Investment, RI to Lag Behind
JAKARTA, KOMPAS – Without significant investment from the private sector, Indonesia will continue to lag behind other countries in infrastructure development.
Although funds from taxes and multilateral financial institutions continue to increase, these are not enough to finance infrastructure development.
"We have to accept the fact that we will not be able to meet Indonesia\'s infrastructure needs. To fulfill it, we must attract more investment from the private sector," World Bank president Jim Yong Kim said at the Indonesia Infrastructure Financing Forum in Jakarta on Tuesday.
The forum held by the Finance Ministry also featured a number of other speakers, including Public Works and Public Housing Minister Basuki Hadimuljono, Communications and Information Minister Rudiantara, and Finance Minister Sri Mulyani Indrawati.
In the forum, Kim said that Indonesia was among the fastest growing countries, growing substantially about 18 years following the Asian financial crisis.
"It\'s really amazing. Believe me, everyone in the world looks to Indonesia. Its high economic growth has attracted a tremendous interest from investors. Indonesia has enormous potential," Kim added.
However, Kim also reminded the forum, to maintain high and sustainable economic growth and to realize the optimal potential of development, Indonesia must find a solution to meet the challenges of infrastructure development. Moreover, the need for infrastructure facilities was growing due to the rapidly growing population.
Investment
Indonesia, according to Kim, had not invested enough in infrastructure during the past 18 years. The accumulated rate of investment for infrastructure development to the gross domestic product (GDP) declined, from about 60 percent in the 1990s to 35 percent at present.
To reach the level in the 1990s, the World Bank estimates that Indonesia would need to invest US$500 billion over the next five years.
"That means it should increase the share of infrastructure spending in the state budget (APBN) and the local budget (APBD) from 2.4 percent this year to 4.7 percent, almost double up to 2020,” Kim said.
The problem, continued Kim, was that the capacities of the APBN and the APBD were not comparable. This was due to three main factors: low tax revenues, inefficient government expenditure, and a law that limits the state budget deficit to a maximum 3 percent of GDP.
"In this, tax reform is essential. I know this is a big problem and not easy. However, this is indeed a very essential factor," he said.
Indonesia’s tax revenues so far, Kim said, were less than 15 percent of its actual potential. However, instead of growing, the tax-to-GDP ratio continued to decline, from 11.4 percent in 2011 to 10.4 percent in 2016. This was lower than 13.6 percent in the Philippines and 14.6 percent in Cambodia.
To that end, Kim encouraged the Indonesian government to continue with tax reform. The World Bank estimated that reforms in tax administration alone could increase the tax-to-GDP ratio by 1.1 percent. Tax regulatory reform would increase the ratio by 0.75 percent.
However, Kim warned, even though tax reforms were being implemented and tax revenues increasing, the budgets of local governments remained inadequate to meet infrastructure development needs. Even though there were conventional sources of financing, funding was still lacking.
Investments for infrastructure from all multilateral development banks in the world, Kim said, only accounted for 5-10 percent of total global infrastructure financing. As a result, a creative and innovative financing scheme to attract private investment was crucial.
Struggle
Sri Mulyani said Indonesia was lagging behind in infrastructure development because the previous president had to fight the impact of the 1997-1998 Asian financial crisis.
As a consequence, the government had to stabilize the economy by reducing debts, building a strong and healthy financial sector in the succeeding 18 years and other strategies. Now, with a more stable economy and a low debt-to-GDP ratio, it was time for Indonesia to tackle that backwardness.
Basuki said the government provided a wide opportunity to the private sector to build infrastructure. The private sector showed much interest for commercially profitable projects.
However, for less commercially profitable projects, Basuki added, the government would facilitate funding through public private partnerships (PPPs) and a cash fund for infrastructure.
Basuki acknowledged that some projects did not attract private investors easily. The main challenge was that the return on investment was below the standard desired by the private sector.
(LAS)