After three years in government, President Joko Widodo is racing against time to complete his infrastructure projects. A number of them are currently being pushed through, covering various sectors, with almost all being worked on at the same time. All these activities spark public excitement, but also raise questions about the projects’ sustainability.
Jokowi’s choice to develop infrastructure is certainly not misplaced. Several studies show that infrastructure development in Indonesia was relatively backward in comparison with its neighbors. Even worse: previous administrations spent more funds on fuel subsidies compared to physical construction.
For example, in 2011, the energy subsidy budget approached US$20 billion, the same as the budget to fund infrastructure for the next two years. This backwardness led to an unhealthy economy, marked by large commodity price disparities between Java and other regions.
In order to reach a healthy and growing economy, Indonesia needs new roads, bridges, power stations, airports and ports. This, in turn, requires massive funding. The total infrastructure budget needed between 2014 and 2019 is estimated at Rp4,197 trillion. Out of that, 42 percent depends on allocations from the State Budget plus money from state-owned businesses.
Jokowi’s decision to cut back on energy subsidies, particularly for fuel, by over 66 percent was the right one. That allowed the government to increase its infrastructure budget by 123 percent in 2015. The budget for this post has continued to increase in the following years.
Unfortunately, the income side has dropped, beginning with an ongoing decline in worldwide oil prices, causing the State’s income from oil and gas to slump drastically. Taxation receipts, pushed hard to become the state’s primary source income, also continue to fall well short of what was expected.
Ignoring this drop in state income, the government has continued to push ahead at full speed with its infrastructure projects. However, infrastructure construction is not very flexible: once a project is begun, it must be carried on to its conclusion so it does not continue to burden the economy. The government ought to recalculate the costs of all these projects, and adjust its schedule to match the nation’s current economic capacity.
The government also has to improve its management procedures for these jumbo projects. All must be undertaken in line with long-term planning, then executed following strict procedures and with close supervision. Opportunities for corruption must be minimized. The practices used in the construction of the Cibubur to Jakarta light rail route must never happen again. At the time, that project was carried out without any clear funding scheme or legal basis.
The government needs to be prudent in its calculations, especially so whenever a project has debt financing that state-owned companies must repay later. It would be a double disaster if, as a result of such a debt burden, a state-owned company would be forced to close down. The government must reconfirm its profit and loss calculations for all these diverse projects once they are completed. For instance, once the Jakarta to Bandung rapid train project is finished, must it then continue to be subsidized indefinitely for it to continue to operate?
Infrastructure projects, such as port construction in remote locations, are not always financially and commercially profitable. When using state funding, such projects do present a potential ‘moral hazard’. Especially so if, while carrying out a project, the common practices of holding arisans (informal lotteries involving only those in the project) and the parceling out of project work persists.
Moreover, Jokowi’s government should involve more private sector parties in these efforts. Involving state-owned enterprises (SOEs) is certainly not wrong. But, if those in the private sector are capable and willing to participate, for instance in supplying electricity, their involvement should be allowed. Apart from the fact that state-owned businesses have limited capacity, the policy of prioritizing SOEs to do the work lowers the opportunity for businesses, already burdened by high tax bills, to otherwise get involved.
Jokowi is racing against time. Infrastructure construction generally takes a while, and its economic benefits are only felt three to five years after construction begins: a time span which does not align with our five-year political cycle. The government should avoid giving the impression that it is impatient to reap its rewards from the projects, especially once the cycle of political succession comes around. Good governance must not be abused for the sake of earning points for the next general elections.