Govt infrastructure projects may 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.