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Politics

Indonesia hamstrings itself in infrastructure push

Government may be too frugal for its own good

Indonesian President Joko Widodo, far left, and Japanese Prime Minister Shinzo Abe, second from right, at the presidential palace in Bogor, Indonesia, on Jan. 15.

JAKARTA -- Despite being a top-priority initiative, infrastructure development in Indonesia has stalled amid construction and funding delays stemming in large part from efforts by the government to control its own spending.

Whether President Joko Widodo can get the ball rolling again will be a critical test of his leadership as he aims to stay in office after his first term ends in less than three years.

Out of sync?

Many infrastructure projects are underway in the country, including a new port, railway modernization and power plant construction -- each worth the equivalent of hundreds of billions of yen, or billions of dollars. But fundraising and other challenges are hampering progress.

A Jan. 15 meeting between President Joko Widodo and Japanese Prime Minister Shinzo Abe epitomized the problem. Widodo welcomed Abe to the city of Bogor, near Jakarta, as Indonesia's first state guest of 2017.

The pick of the Bogor presidential palace surrounded by greenery, rather than the central Jakarta palace, shows that Widodo wanted to take time to discuss pending matters in a quiet environment, according to a senior member of his staff. Foreign leaders rarely get to visit the Bogor palace. That Abe did highlights the special level of hospitality extended to Japan.

The Japanese side also described the summit as amicable. But Indonesia apparently did not get what it wanted from the meeting: concrete progress on infrastructure development.

Indonesia had hoped to sign memorandums of understanding on projects Japan had agreed to support: one on contractor selection for a new Patimban port, and another on a feasibility study for modernizing a roughly 750km railway connecting Jakarta in western Java and Surabaya in eastern Java. Another memo could have been signed on extending the interest of Japan's Inpex in the Masela block, one of the world's largest liquefied natural gas projects.

But the post-summit joint statement only touched on strengthening maritime cooperation and on the development of remote islands. No memos were signed on infrastructure projects.

Hopes were particularly strong for Japan to sign on to the railway feasibility study. Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan, who is exceptionally close to Widodo, had asserted before the summit that Japan would participate. This reflected Jakarta's earnest desire to bring Tokyo on board.

Who knows what?

Abe likely avoided making new commitments because the two sides are not on the same page. This railway project was a plan to speed up service by addressing illegal crossings and sharp curves, using existing diesel locomotives. The assumption has been that Japanese official development assistance would be tapped for funding.

But Indonesia abruptly changed the scope when a new transport minister took office in late July. It now wants to electrify the entire rail line. Such changes would quadruple the cost from around 200 billion yen ($1.74 billion) to 850 billion yen. "There is no way Japan can accept such plans as is," a perplexed Japanese government source said.

Indonesia wants to build high-quality infrastructure without adding to its fiscal deficit. So it has been bent on shouldering no outlays by employing public-private partnerships as a funding vehicle. But having private companies undertake projects often means delays in funding and the start of construction.

No real progress has been made on a Chinese-backed high-speed-rail project whose construction officially began a year ago. Many other projects are in a similar boat.

The summit also shed light on weak communication within the Indonesian government. Widodo said after the meeting that Indonesia was awaiting a Japanese proposal on the cross-Java rail project, even though one had already been submitted.

Can Widodo demonstrate his leadership by pushing infrastructure development? The coming year will prove to be crucial as he seeks another term.

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