Despite the improving economy in recent years, Indonesia needs to make substantial investments in its crumbling infrastructure if it is to raise economic growth rates to even higher levels in the years to come.  In this regard, the Indonesian government has said that around some US$140-150 billion would be needed to fund infrastructure such as roads, ports and airports in the next three years alone. Such a huge sum of money will not be easy to find, however, and this explains why the government is actively seeking foreign investor participation in infrastructure projects. All in all, the government hopes that foreign investors will be able to come up with around 90 percent of the funds with the remaining 10 percent provided by the Indonesian government itself.  

Thus far, it is true to say that infrastructure investment has lagged far behind. Yet there have been some encouraging signs in recent months that the government is taking more serious efforts to addressing the problems faced by investors.  Land clearance is one area, for example, where the government has made progress, since it has now introduced a better mechanism to deal with land acquisition issues, supported by a transparent process for pricing. Moreover, the government has also provided revolving funds for land acquisition together with a policy on land capping. The result is lower investment risk and greater certainty in regard to the return on investment. To illustrate the success of these policies, state owned toll road operator Jasa Marga has now embarked on the 11km long Bogor Ring Road (BORR), the country’s first new toll road project since the devastating financial crisis broke out in 1997.

The government is also working hard to end monopolies. The nation’s huge telecommunications industry is the most obvious example of a state monopoly that has been transformed into a highly competitive industry with many market players.

Now the government has moved to end the monopoly enjoyed by the state-owned port operator Pelindo. Under the new law, the role of regulator shall be separated from operator and companies shall be allowed to build and operate ports in Indonesia. This should lead to greater efficiency and increased investment in infrastructure that shall, in turn, hopefully give a boost to exports.

Meanwhile, there are also concerns over the sustainability of electricity supply in some parts of the country. As such, state owned electricity company PLN has expressed plans to build an additional 10,000MW of coal-fired power plants across Indonesia in 2009-10 given the strategic importance of the projects. This should help prevent the occurrence of blackouts. In addition, Independent Power Producers (IPP’s) have also voiced plans to develop another 10,000MW of power projects.

In a bid to encourage investment in infrastructure, the government is promoting projects in China, given that this country has already expressed a strong willingness to invest in a number of sectors, and the Middle East, another region from which Indonesia hopes to attract more investment. Recently, Indonesian lawmakers passed a bill to allow the government to sell Sharia-compliant debts  (sukouk) on either the international or domestic markets. This should help the government to draw funds from Middle East investors to develop costly infrastructure projects.