Jokowi Steps Up Infrastructure as Indonesia Budget Strained

Indonesia’s government is speeding up an infrastructure rollout program that President Joko Widodo has made a hallmark of his administration, despite its budget coming under strain.

Even with a reduced allocation this year, the Public Works Ministry has spent a bigger proportion of its budget in the first half compared with 2015. The department’s spending on infrastructure was cut to 97 trillion rupiah ($7.4 billion) in a revised fiscal plan, down from 104.1 trillion rupiah initially projected, Taufik Widjoyono, secretary general of the department, said in an interview in Jakarta on Thursday.

Jokowi -- as the 55-year-old president is known locally -- initially struggled to get infrastructure projects off the ground in his first year after taking office in 2014, frustrating businesses and undermining his popularity. He had pledged to build ports, roads and railways to spur growth in Southeast Asia’s biggest economy to 7 percent.

Momentum is now gaining with the government set to begin building at least 335.6 kilometers (209 miles) of toll roads from this year until the end of 2017, according to Widjoyono. That’s about a third of the 1,060 kilometers Jokowi had planned to build during his five-year term.

‘Very Serious’

“We aren’t just serious about building infrastructure, we’re very, very serious,” Jokowi said in a speech in Jakarta on Friday. “This is something we absolutely must do to build the foundation of our economy, even if the work is bitter at the beginning.”

The Public Works Ministry has spent almost 27 percent of its allocation so far this year, up from 15.5 percent in the same period of 2015, Widjoyono said. While that’s still short of a first-half target of 42 percent, Widjoyono said he is confident it can disburse 94 percent of the budget for this year.

“The budget cut wouldn’t significantly affect our ability to invest in infrastructure this year,” he said. Inflows from a recently approved tax amnesty law are expected to help to ease the revenue shortfall, and the ministry is expecting an allocation of 106 trillion rupiah next year, he said.

Infrastructure Gap

Among some of the projects underway are the Trans Java toll network, which will provide uninterrupted toll-road connection in the country’s main island, a high-speed railway from Jakarta to Bandung and construction of a 720-kilometer railway from Jakarta to Surabaya that’s been granted to Japanese investors.

Lower commodity prices have led to revenue shortfalls this year, prompting the government to adopt a tax amnesty plan that the central bank estimates will boost state coffers by 53 trillion rupiah. Jokowi officially kicked off the program on Friday.

Despite the size of its economy and a population of 256 million, Indonesia’s infrastructure is lacking compared with its peers in the region. The drinking water supply system covers only 68 percent of a total need of 24,544 liter per second and the housing backlog continues to rise every year. In 2015, the government built about 600,000 houses or apartments, lower than its 1 million target.

Jokowi needs as much as 5,519 trillion rupiah for infrastructure investment in his first term -- on projects from power and energy to sea and transport -- according to the Public Works Ministry. The state budget can finance about 40 percent of that, with 31 percent coming from private investors.

-bloomberg

Follow Infrastructure 21
Event News
PWTC: In conjunction with this milestone event for digital entrepreneurship for the nation, the Prime Minister of Malaysia, YAB Dato’ Sri Mohd... Read more »
International Construction Week (ICW) and Ecobuild Southeast Asia take the lead gathering Malaysia’s construction leaders in discussions on the... Read more »