Govt infrastructure projects expected to spur economy

Govt infrastructure projects expected to spur economy

Leony Aurora and Rendi A. Witular, The Jakarta Post, Jakarta

Large government-backed infrastructure projects will return to
become the bread and butter of the construction sector if the
government goes through with its plan to increase overall
development, an observer says.

Panangian Simanungkalit told The Jakarta Post over the weekend
that currently, property development in the private sector,
spurred on largely by low bank interest rates, was the main
driver of growth in the construction sector, accounting for 60
percent of construction projects.

Before the monetary crisis hit Indonesia in 1998 and had a
devastating affect on many sectors, including construction, the
situation was different.

At that time, infrastructure projects to build toll roads,
harbors and airports were the main driver of the construction
sector.

"Those sorts of major infrastructure projects could again
become the main driver of the sector if the government carries
out its planned projects," he said.

In an effort to prevent future problems due to insufficient
capacity of roads, bridges, railroads, ports and airports, the
government has formed a special team to help raise funds from
local banks to finance infrastructure construction.

Raden Pardede, vice president director of asset management
firm PT Perusahaan Pengelola Aset (PPA), said he was appointed by
Vice President Jusuf Kalla to lead the special team that would be
tasked with speeding up the development of key infrastructure.

"I have heard that the Vice President has appointed me. But I
have not received the official letter yet," said Raden over the
weekend.

The team, which will consist of several key economic ministers
and state enterprise executives, is expected to help local banks,
especially state banks, channel their excess liquidity into
investment in infrastructure. According to the Central Bank,
excess liquidity at banks now reaches some Rp 200 trillion.

The government is expected to construct some 300 kilometers of
toll roads per year, up from the current average of 24 kilometers
per year, with an annual investment of as much as Rp 30 trillion
(US$3.3 billion).

One major toll road project is part of the planned 1,500-
kilometer network of highways, initiated by former president
Megawati Soekarnoputri, which will link Merak in Banten with
Banyuwangi in East Java. The roads may cost up to $8 billion.

The network is expected to be completed by 2010.

The business community fears that a delay in the construction
of the roads will disturb business activities in Java,
Indonesia's central economic heart, and will eventually hamper
economic growth nationwide.

Minister of Communication Hatta Radjasa said the government
would need a total of $72 billion within the next five years to
finance the construction of all infrastructure needed by the
business community.

The construction sector is showing an accelerated recovery
after being hit hard by the monetary crisis in 1998. The Central
Statistics Agency reported that in the third quarter of the year,
this sector expanded by 8.89 percent -- the second highest jump
after the telecommunications sector.

Simanungkalit said that the property market would continue to
show strong growth for the next three years at least. He
estimated the private construction sector would expand by 12
percent by the end of this year.

Fueled by the booming construction sector, cement consumption
in the country was expected to grow 8 percent through the end of
the year, said Lukman Anwar of the Indonesian Cement Producers
Association (ASI).

"The growth (in cement consumption) is very significant
compared to last year's figure," he said.

Domestic cement sales grew by only 1 percent in 2003 to 27.5
million tons from 27.2 million the year earlier.

Lukman predicted that next year, demand for cement would
increase up to 10 percent.

In a previous interview, however, state-owned firm PT Semen
Gresik, the country's largest integrated cement producer,
estimated that cement consumption would be higher, near 12
percent, in 2005.