Creaky infrastructure impedes Indonesia's growth

By Ahmad Pathoni Jan 16, 2012, 6:18 GMT

Jakarta - Indonesia is experiencing solid economic growth despite the global financial uncertainty, but bottlenecks on roads, overcrowded ports, and frequent power cuts get in the way of further expansion and hold up business.

More citizens in the world's fourth most populous country with 240 million people are buying cars and motorcycles, making Indonesia a darling of auto manufacturers, but the growth increasingly outpaces the construction of new roads.

'Indonesia can achieve economic growth of between 8 and 9 per cent if infrastructure development is accelerated,' said Fauzi Ichsan, chief economist with Standard Chartered Bank Plc in Jakarta.

'We are talking about building power plants and more toll roads and modernizing sea ports and airports,' he said.

Hendra Aditya, an accountant at a private company in Jakarta, said he spent more and more time in traffic as roads in the capital become increasingly crowded.

'These days I spend four hours or five on the road daily and that's despite the fact that both my house and office are in Jakarta,' Aditya said.

Flooding forced Jakarta's traffic to come to a standstill during a recent rain storm, with fallen trees and collapsed billboards worsening the problem.

Indonesia's gross domestic product (GDP) grew 6.5 per cent in 2010 and the government expects the economy to grow 6.4 per cent for 2011, at a time when more developed countries are experiencing a downturn.

The South-East Asian country spends nearly 4 per cent of its GDP on infrastructure, but analysts said it needs to increase that if it wants economic growth of more than 8 per cent, like China.

The government of President Susilo Bambang Yudhoyono, who has been praised for steering Indonesia to economic and political stability, is aware of the problems.

The government has made infrastructure development a priority for 2012 by allocating 62.5 trillion rupiah (6.8 billion dollars) in the current budget year, said Wardiono, a spokesman for the Ministry of Public of Works.

Half of the money will go to building roads and bridges, he said.

'The projects will contribute significantly to the economy,' said Wardiono, who like many Indonesians goes by one name.

'More roads means better distribution of commercial goods and better connection between developed and less developed areas.'

Last month, the parliament approved a law that allows the government to requisition civilian land for infrastructure development by compensating landowners with cash, land or other forms of payment.

Many projects have been delayed by residents' refusal to sell their land.

Endemic corruption and inefficient bureaucracy have also been blamed for the sorry state of infrastructure.

'Financing is not the problem in the infrastructure sector,' Ichsan said. 'Land acquisition and the inability of local governments to execute projects are among the main problems.'

In June, Standard Chartered Bank estimated that less than 5 per cent of the 145 billion dollars worth of infrastructure projects earmarked at the beginning of Yudhoyono's first term in 2004 had been completed.

In an accident that highlighted the infrastructure woes, a 10-year-old suspension bridge collapsed in East Kalimantan province in November, sending buses, cars and motorcycles into a murky river and killing 36 people.

An investigation into the collapse of the bridge was ongoing, but many Indonesians have already aired suspicions about possible corruption that led to shoddy construction and poor maintenance.

A 2011 World Bank report ranked Indonesia 161st among 183 countries for the ease of getting reliable electricity for businesses.

A recent survey of more than 12,000 companies conducted by the Asia Foundation revealed that on average, firms experienced blackouts about three times a week and interruptions to water supply almost twice a week.

More than 40 per cent of the firms also considered roads, water supply, and street lighting to be in bad condition.

Public Works Minister Djoko Kirmanto said infrastructure development in the country's eastern region, including Papua, would be prioritized.

'Sixty per cent of Papuans live in the mountains and they are extremely isolated,' he said.

'We need to connect the 60 per cent with the rest of the population but building roads is not easy there.'

Meanwhile in Jakarta and its suburbs, those who do not own motorcycles or cars have to struggle daily to get into slow-moving and crowded buses and trains.

A city of 10 million people, Jakarta is only starting a tender process to build a mass transit system similar to those in neighbouring countries like Malaysia, Thailand and Singapore.

A monorail project was abandoned entirely last year because of financial problems, even though concrete columns for it have been built on two of Jakarta's busiest streets.

'Unless the government does something, I'm afraid the traffic will grind to a halt in a few years,' Aditya said.