Indonesia needs US$100b for infrastructure development

JAKARTA (JP): Indonesia will need some US$100 billion in infrastructure development to meet the demands of its growing economy, an analyst said on Wednesday.

Business information provider Strategic Intelligence said the government should encourage the development of infrastructure, such as water, power, telecommunications, roads, airports and harbors, which virtually stopped during the economic crisis.

Chairman of Strategic Intelligence Scott Younger, said in 1997, prior to the crisis, the National Development Planning Board (Bappenas) had estimated a total investment need of US$150 billion in infrastructure development to sustain the then economic growth of six percent.

Younger said he expected the private sector to spend some 70 percent to 80 percent of the estimated US$100 billion in infrastructure investment.

"In the past, one assumed that the domestic market would fund part of that investment, but at the moment the domestic market is dormant," Younger said following a news briefing of his company's upcoming investment seminar.

The two-day seminar, titled The Indonesian Government & Business Investment Forum 2000, will be held at the Borobudur Hotel on March 29.

Younger predicted that domestic banking institutions would still be unable to provide funding for infrastructure projects for the next two years.

Younger said the government therefore played a vital role in preparing the financial grounds for infrastructure development, estimating that the banking sector would then engage in serious lending for infrastructure projects by 2002 or 2003.

He said foreign investment would initially drive infrastructure development, while the domestic lending institutions would catch up.

However, he said, foreign investors would only be attracted if they saw a reasonable rate of return in investment.

Younger said this would leave the government considering how much in foreign loans it would set aside for infrastructure development.

Younger said much of the infrastructure investment would go into the energy sector.

He said the industrial sector relied too much on cheaper subsidized diesel fuel, while most of their products were directed for overseas markets.

"The balances are wrong and we need to get people to use electricity," he said.

Electricity

Although the present electricity supply still outweighs demand, Indonesia needs to start building new power stations four to five years ahead, he said.

In anticipating a surge in power demand, the government supported the construction of private power stations during the early 1990s to supply state-owned electricity company PT PLN.

The economic crisis, however, lowered the country's power consumption as industries cut their production capacities, causing PLN and independent power producers to face an oversupply of power.

Nevertheless, he said, there was still a huge lack of power transmission to distribute the electricity from the power stations.

Younger said unlike the telecommunications sector, which has been rapidly growing due to the involvement of the private sector, the development of roads and public sanitation, especially in large cities, still depended on financial aid from the government.

He predicted that by 2025, some 50 percent of Indonesia's population would end up living in cities, which was the normal trend for a growing economy.

He said development of infrastructure should start in growth centers, which are the major cities in the provinces, to turn them into viable living places.

"In Jakarta, health problems because of a lack of water approaches $1 billion a year plus what we lose in terms of productivity because of poor health," he said.(bkm)