New partnership for infrastructure in Indonesia<\/p>\n
Jemal-ud-din Kassum, Jakarta<\/p>\n
The terrible tragedy in Aceh has shown us the power of people
\nuniting to work together to overcome and rebuild. We should use
\nthis lesson to address another, less obvious crisis that is
\naffecting the lives of many poor people in Indonesia: The growing
\nshortage of quality infrastructure services. Over 40 percent of
\nIndonesians do not have access to electricity. Only 14 percent of
\nthe people are connected to a regional water utility and access
\nto proper sanitation is shockingly low.<\/p>\n
There is a large backlog of road investments, and congestion
\nimposes a heavy burden. Fixed-line telephone access is the
\nlowest in the region, affecting Indonesia's competitiveness for
\ninvestments. These infrastructure constraints are holding back
\nboth economic growth and access to basic services, especially for
\nthe poor. Unless they're addressed, Indonesia will not be able to
\nachieve its development goals for job creation and poverty
\nreduction.<\/p>\n
At today's Infrastructure Summit, we heard some remarkable
\nstatements of commitment from the new government for a new way of
\ndoing business in infrastructure in Indonesia. President Susilo
\nBambang Yudhoyono called on all of us to join in a new
\npartnership to resolve Indonesia's infrastructure needs.<\/p>\n
The Government has shown real determination to move ahead with
\nurgently-needed reforms to improve investment and reduce
\ncorruption. It will take time and persistent effort to change the
\nstatus quo. There are strong entrenched interests that will
\nresist efforts to put in place a more transparent and cost
\neffective framework for infrastructure development.<\/p>\n
A shared commitment is needed to improve the quality and
\nefficiency of infrastructure services to make a real difference
\nto the lives of Indonesians. Imagine a high-grade highway that
\nwill connect the major economic centers in the country;
\nincreasing access to the nearly 90 million people that currently
\ndo not have electricity today largely with the help of small-
\nscale producers of renewable energy; a gas pipeline that will
\nconnect abundant gas fields in Kalimantan to the power plants and
\nindustrial consumers in Java; or ramping up access to potable
\nwater throughout the country through local government
\ninitiatives. This can be the Indonesia of tomorrow -- if we
\nstart today.<\/p>\n
We know this will be expensive. It is estimated that
\nIndonesia will have to invest at least US$15 billion each year --
\nan extra investment of 2 percent of GDP on top what is currently
\nbeing spent -- over the next five years on infrastructure to
\nsupport an annual growth rate of 6 percent. Additional funding
\nwill also be needed to maintain and optimize existing assets.
\nExperience also teaches us one important lesson: Whether
\ninfrastructure is owned, managed and financed by the public or
\nprivate sector, a sound policy environment is the key to success.<\/p>\n
In Indonesia a large share of the funding for infrastructure
\nwill continue to come from the public sector in the near future.
\nBut, given the constraints on budget resources, public funds must
\nbe used strategically to catalyze private investments in
\ninfrastructure and support projects that are important but cannot
\nattract private finance. Public utilities must be made more
\nefficient so that they make the most of existing assets.<\/p>\n
More broadly, the central government has an important role to
\nplay in providing direction to Indonesia's infrastructure
\nstrategy, and to coordinate activities across sectors, space and
\ntime. This is especially important in a decentralized Indonesia.
\nLocal governments and communities have an increasing role in
\ninfrastructure decisions and sector governance.<\/p>\n
The private sector will be expected to provide a growing share
\nof the financing for infrastructure development. Despite a
\nrecovery in investment over the past year, and a recent upgrade
\nin Indonesias foreign currency credit rating, the overall
\ninvestment climate in the country still ranks very low in the
\nregion. Potential investors complain most loudly about policy
\nuncertainty and corruption, holding back infrastructure
\ndevelopment.<\/p>\n
Yesterday the Government announced its willingness to
\nguarantee Government performance and regulatory risk in certain
\ndefined areas and in cases where it is absolutely necessary, to
\nattract private investment. This is a welcome step in the right
\ndirection. Government's plans to put in place a risk allocation
\nand mitigation framework to comprehensively evaluate each project
\nproposal will help ensure that public funds are used in the most
\nefficient manner.<\/p>\n
The private sector is needed for more than just funding. It
\nmay be the most efficient and effective way to deliver
\ninfrastructure services -- provided it is able to operate in an
\nenvironment characterized by competition, adequate pricing
\narrangements, and adequate regulation.<\/p>\n
The private sector also has a responsibility to behave as good
\ncorporate citizens and hold themselves to the standards of good
\ngovernance, transparency, and accountability which they
\nthemselves would ask for from government, and also meeting world
\nclass standards of environmental and social sustainability.<\/p>\n
We must agree that the infrastructure puzzle cannot be solved
\nthrough a single entity. Instead, it takes all stakeholders --
\ncentral government, local authorities, private sector and
\ncommunities -- focusing on their distinct roles, but working
\ntogether in partnership to provide Indonesians with the quality
\nof infrastructure services they deserve.<\/p>\n
Indonesia has the opportunity now to build on the current
\nmomentum, and the clear commitment of the new government, to make
\na real push on infrastructure development, with concrete goals
\nand measurable progress over the near term. We now need to move
\nfrom vision to action -- here as President Susilo noted so well
\ntoday, we all have a role to play.<\/p>\n
The writer is the World Bank's Vice President for East Asia
\nand the Pacific. This is an abridged version of his remarks at
\nthe Indonesia Infrastructure Summit in Jakarta on Jan. 17, 2005.<\/p>",
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