Jokowi bets on an infrastructure boom

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Author: Peter McCawley, ANU

Tip O’Neill, speaker of the US House of Representatives in the 1980s, famously declared that ‘all politics is local’. The rule applies in Indonesia too. In the hotly-contested campaign for the 17 April Indonesian presidential election, a focus on roads, electricity and water is a key selling point that President Joko ‘Jokowi’ Widodo is pushing in his bid for re-election.

Indonesia's President Joko Widodo speaks as he takes part on Jakarta Mass Rapid Transit (MRT) first-phase launching in Jakarta, Indonesia, 24 March 2019 (Photo: Reuters/Willy Kurniawan).

Jokowi’s main challenger, Prabowo Subianto, has sought to bring up all sorts of other issues during the campaign. He is trying to paint Jokowi as too sympathetic to foreign interests, concentrating rhetoric on the ‘flood’ of imports coming into Indonesia, including through the Indonesia–Australia Comprehensive Economic Partnership Agreement. He also portrays Jokowi as soft on threats to Indonesia, especially in terms of Chinese-built infrastructure. And he is targeting Jokowi over failing to spend enough on defence, pointing to Singapore’s defence budget being larger than Indonesia’s.

Jokowi has instead decided to focus his attention on promoting a boom in infrastructure spending. The infrastructure boom is one of Jokowi’s signature answers to Prabowo. When Prabowo talks defence, Jokowi responds, ‘We all agree we need to increase our defence budget. But we must have priorities. For now it is infrastructure’.

An infrastructure boom sounds good. But is this infrastructure needed? How is the program going? Is Jokowi’s program delivering results?

It seems clear that the infrastructure boom is badly needed. National investment in infrastructure in Indonesia has lagged badly since at least 2000. China and Vietnam have been investing around 7 per cent or more of GDP in infrastructure per annum for the past two decades. In contrast, infrastructure investment in Indonesia has been stuck at around the 3 per cent level. A rough Asian Development Bank benchmark is that a minimum of 5 per cent of GDP is an appropriate level for developing countries to aim at, if not more. From this point of view it is clear that Jokowi’s focus on infrastructure makes sense.

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It makes sense from another point of view as well. Recent World Bank data suggests that the stock of capital in Indonesia is still very low. The World Bank estimate is that in 2014 both the United States and Australia had a national stock of capital of around US$1 million per person. By comparison Indonesia had around US$50,000 per person.

Capital accumulation in Indonesia, what investment in infrastructure contributes to, is a vital step towards promoting development. Jokowi’s approach of investing in infrastructure is a key step towards trying to build up the level of capital.

The infrastructure program in Indonesia has been spread across a range of sectors. In the transport sector there have been investments in roads, ports, rails and airports.

The total length of toll roads has expanded quickly in recent years. Although the major toll road between Jakarta and Bandung has been in operation for about 15 years, links with other parts of Java have come slower. But for the first time it is now becoming possible to travel quickly by toll roads from Jakarta to other cities in Java such as Semarang, Surabaya and neighbouring regions.

Jokowi has emphasised investment in ports as well. He began his presidency in late 2014 by talking of the need to develop maritime services across Indonesia, noting that inefficient services in ports and shipping drove up the costs of basic goods for both producers and consumers. One highly publicised project is the US$2.47 billion Kalibaru Terminal at Jakarta’s port of Tanjung Priok, the largest in the country.

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Marked improvements in existing rail services, along with new railway projects, have also been attracting much attention lately. For many decades the state-owned rail company PT Kereta Api provided third-rate services across Java. But in recent years the company has lifted its game and performance has improved markedly.

New services are being announced quickly as well. Recently an efficient rail link from Jakarta’s international airport to the city centre came into operation. And March 2019 saw the Jakarta Mass Rapid Transit (MRT) metro system open for general use. The successful construction and inauguration of the MRT, with both underground and overhead stations, is a minor infrastructure miracle in Indonesia. Jokowi has announced that several extensions of the system are now underway.

How successful all these efforts will be — both in the short run and the long run — remains to be seen. Some of the infrastructure projects have run into much-publicised problems. But in the short run, Jokowi is no doubt hoping that voters will be impressed with the results of his infrastructure-led economic program.

In the long run, all new infrastructure needs good management and maintenance. This is expensive and calls for continuing government subsidies and increases in unpopular tariffs.

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Despite these challenges, Jokowi’s infrastructure program has delivered clear results. If Jokowi wins a second term on 17 April as polls suggest, the infrastructure boom will doubtlessly continue over the next five years. If Prabowo comes from behind to become the next president of Indonesia, chances are that he will be more than happy to take over the encouraging list of projects that Jokowi is promoting.

Peter McCawley is Honorary Associate Professor in the Indonesia Project, Crawford School of Public Policy, The Australian National University. He was formerly an Australian Executive Director on the Board of the Asian Development Bank, Manila.





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