JAKARTA (BLOOMBERG) – Indonesia is developing ambitious plans for over 400 billion dollars (547 billion dollars) in construction projects, from the construction of 25 airports to the development of new power plants, since the government seeks to stimulate growth in the largest economy in Southeast Asia, according to the country's planning minister.
The radical proposal foresees a record of 5,957 trillion rupees (564 billion dollars) in investments from 2020 to 2024, said the minister Bambang Brodjonegoro in an interview this week. As many as 40 percent of the total will be funded directly by the government, 25 percent through state-owned enterprises and the rest through the private sector, he said.
About 60 percent of the expenditure will go to infrastructure related to transport, according to a draft of the plan seen by Bloomberg and verified by the ministry.
This expenditure would be based on the strategy of President Joko Widodo to use infrastructure as a key axis to promote economic growth and spread wealth beyond the main island-power station of Java, where the capital is located. The construction of harbors and critical facilities is particularly complicated and expensive in Indonesia because the country is dispersed in 17,000 islands on an area that extends between New York and London.
"The only way for Indonesia to have higher economic growth is connectivity," Brodjonegoro told Jakarta. "We are planning to establish the equivalent of a highway to the skies by building airstrips or small airports for connectivity" in remote areas like the Papua region, he said.
Despite the potential benefits, massive projects have been difficult for the government to finance in recent years, partly due to low fiscal compliance in Indonesia and the low prices of raw materials that have strained the state budget. Several projects have been shelved or delayed, although some bodies, including the World Bank, have warned of an enormous infrastructure gap that limits economic growth.
The economy of Indonesia has expanded to around 5% a year. While the government is aiming for a growth of 5.3% to 5.6% next year, this is still less than 7% that the president had targeted before the start of his first term.
The president, popularly known as Jokowi, should be confirmed for a second term when the official results of the April 17th elections will be announced next week. The ministry is preparing the final documents on the investment plan to be presented to the president for approval, a ministry spokesman said.
The proposed investments exceed the $ 350 billion infrastructure guide – the largest in the nation's history – established during Mr Widodo's first term. The new spending plan is equivalent to about 5.7 percent of gross domestic product from 2020 to 2024, during which the government targeted economic growth of 5.4 percent to 6 percent, according to the project of proposal. The government is open to the possibility of financing some projects through debt, said Brodjonegoro.
According to the draft plan, around 17% of infrastructure spending will go towards energy, followed by 10% for irrigation.
The proposal also provides for the modernization of as many as 165 existing airports and the development of water-based structures for seaplanes for access to remote islands, Brodjonegoro said.
Better infrastructure would also complement the government's efforts to attract more tourists to reduce the current account deficit, which widened to a maximum of four years in 2018 and put pressure on the nation's currency, bond and equity markets.
Separately, the minister said the government will push for the certification of the N219 propeller-powered aircraft developed nationally to support the expansion of the air transport and tourism industries in the nation of over 260 million people. The head of PT Dirgantara Indonesia, the aircraft manufacturer, said Monday (May 13) that he expects local regulators to approve the aircraft this year.