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Economy

Indonesia seeks "all options" to fund infrastructure push

SOEs rush to capital market, offer projects as government spending slows

Indonesian President Joko Widodo poses for a photo at a newly constructed highway in Medan, Sumatra, in October. (Courtesy of Presidential Secretariat of Indonesia)

HONG KONG -- The Indonesian government is going all out to seek financing for power plants, toll roads and airports, hoping to give a boost to President Joko Widodo's ambitious infrastructure program that has been progressing slowly.

Indonesia has planned 247 projects worth some 4,800 trillion rupiah ($355 billion) to be developed between 2015 and 2019, but the government is only able to finance around 40% of those. With just two years left in this term, Widodo and his government are under pressure to deliver.

Finance Minister Sri Mulyani Indrawati said the government needed to strengthen fiscal discipline in the face of monetary tightening by the U.S. and European central banks, meaning that the prospects of an increase in government spending are slim. The infrastructure budget of 411 trillion rupiah earmarked for 2018 is 6% higher than this year's but marks a smaller increase than in previous budgets.

"We want to achieve higher growth not through fiscal deficit but through structural reform that will invite more private capital to be invested more in Indonesia," she told Nikkei Asian Review in an interview in Hong Kong on Wednesday. "Indonesia will continue to do that [as] preparation in facing uncertainties of the world."

Finance Minister Sri Mulyani Indrawati (Photo by Wataru Suzuki)

Some large-scale projects, such as the 20-trillion-rupiah expansion of the Kualanamu airport in Sumatra, have recently been offered to the private sector. The government is also pursuing foreign investors by having its state-owned enterprises tap capital markets. SOEs in the infrastructure sector are planning to raise as much as 27 trillion rupiah by the end of the year through bond issuances and initial public offerings of subsidiaries, according to local media reports.

"I really don't care if you come to Indonesia in the form of project finance or bond," Indrawati said. "We will try all to be able to attract."

While she said "interest from the private sector [in infrastructure projects] is obvious," progress has been slow. According to the government's Committee for Acceleration of Priority Infrastructure Delivery, only five of the 247 priority projects have been completed as of June 2017, with another 130 projects under construction.

Observers have praised Widodo's efforts in relieving bottlenecks in land acquisition and streamlining the process of obtaining investment permits. But some have also noted the lack of reform in ownership rules and regulations, as well as efforts by the government to mitigate risk. As the state tends to operate sectors like railways and airports historically, Indrawati said presenting the projects to investors remains "a challenge."

There are hopes that the China-led Asian Infrastructure Investment Bank, which began operation in January 2016, could help. Indrawati, who returned as finance minister after serving as the managing director of the World Bank for six years, said AIIB and other multilateral development banks "can create a good catalyst for private capital for infrastructure development."

Time is running out. Without a major pickup in investment or government spending, in addition to sluggish consumer spending, Indonesia's economic growth has been hovering around 5% since Widodo took office. Investor appetite in upcoming projects will likely determine the country's economic prospects.

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