Indonesia’s Low Infrastructure Spending

For a country that is constantly being discussed as the next global economic power, Indonesia surely spends little on infrastructure.

From the Jakarta Post:

In 2005, the government spent Rp 32.9 trillion on infrastructure development. This represented only 1.2 percent of the total gross domestic product that year. Six years later, the government spent Rp 141 trillion on infrastructure while the gross domestic product stood at Rp 6,840.4 trillion. This means that the ratio of infrastructure development in comparison to gross domestic product stood only at 2.1 percent in 2011

I met Akash Deep from HKS during a discussion in Jakarta, and his comments was that Indonesia spends too little on government spending. “Being conservative in consumption is good, but conservative on investment is not good,” he said. At 2.1 percent from GDP, below the ideal level of 5 percent, one wonders why the allocation was so little in the first place.

Well, an obvious answer was that the level of realization of the allocated budget is slow. How can you allocate more if you’re unable to spend what has been allocated in the first place? Data from LIPI (quoted from the linked article), as of September 2011 the budget utilization stood at only 30 percent.

Then you need to figure out why the disbursement of funding so slow…bureaucratic inefficiencies, regulatory holdups, corruption perhaps (or most likely).

If the government is not willing to spend on infrastructure, their strategy is to depend on the private sector through PPP. Thing is, even if Indonesia’s rating got another boost from Moody’s lately, if the weaknesses in Indonesia’s infrastructure investment environment is not fixed, the PPP strategy is unlikely to produce results in the speed that is needed.

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1 thought on “Indonesia’s Low Infrastructure Spending”

  1. Indonesia for sure is a potential powerhouse. But it may grow to be a giant on very short legs.

    As it is hardware (roads, railways, seaways, water, ) and software ( rule of law, schools, hospitals) don’t qualify for a top-economy.

    To get the process going I guess big government is necessary. But it’s “catch 22” is it’s present combination of political and bureaucratic attitudes and culture.

    It’s still a long way to Tipperary, I’m afraid.

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