The art of infrastructure diplomacy
July-September 2017
By: Eriz Wicaksono

When President Joko Widodo delivered a speech at the APEC summit in Beijing in 2014, his message was clear: it could not be a better time to invest in Indonesia. This alerted nations worldwide that, maybe, what he was saying was true. As the global economy slows, economic powerhouses around the world have been looking to create fresh investment opportunities. For its part, Indonesia has been in dire need of large investment to drive its development – especially in the infrastructure sector. This confluence of interests seemed to be the platform to bring the sides together.

The infrastructure gap

During a speech to kick off the Indonesian government’s tax amnesty program, in July 2016, President Joko reaffirmed that “we aren’t just serious about building infrastructure, we’re very, very serious.” This came as no surprise as he has always highlighted infrastructure development as a national priority.

Indonesia is believed to have the highest infrastructure investment gap among members of the Association of Southeast Asian Nations. The World Economic Forum’s Global Competitiveness Report 2016-2017 ranked the quality and supply of Indonesia’s infrastructure 60th out of 138 nations. This is not inspiring for a nation with big ambitions. For instance, among Southeast Asian countries, Indonesia is outranked by Malaysia (24) and Thailand (49). This is very concerning, especially when the report also stated that inadequate supply of infrastructure is the third-most problematic factor in doing business, just behind corruption and inefficient government bureaucracy. Indonesia’s lack of infrastructure is a bottleneck to foreign investment, while foreign investment is crucial to finance infrastructure development. It’s a vicious circle.

The previous Indonesian administration’s policy to subsidize energy is arguably why the government underspent on infrastructure. In 2014, spending on energy subsidies accounted for more than one-fifth of the state budget – three times the amount of infrastructure spending. Even now, with all the new funds allocated to infrastructure development, the gap is still enormous. The Joko administration laid out ambitious plans for $480 billion in infrastructure development between 2015 and 2019, but the government is certainly in no position to finance this itself. Even with the country breaking its own record each year for infrastructure development spending, the actual total state spending plan for 2015-2019 is roughly only $190 billion.

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