Infrastructure development unlikely to spur growth

Umar Juoro, Jakarta

The government's intention to stimulate the economy through infrastructure development, which will be accelerated by Bank of Indonesia's easing of legal lending limits related to the financing of infrastructure and other programs in the supply of basic needs of the people, may not be effective for increasing economic growth to an annual average of 6.2 percent.

The reason is that this intention is not supported by officials at the technical level or by expansive bank lending. New credits will continue to go mostly to consumer and commercial financing and not to such long-term, high-risk investment projects as infrastructure.

The business community, especially those involved in large investments such as oil and gas mining and infrastructure, does not doubt the strong commitment of the President and his ministers, but they are not sure about the support of officials in charge of realizing the commitments.

Up to now, there have not been any changes within the bureaucracy. Several important economic ministries, such as those in charge of public works, industry and trade, do not have a formal structure yet, not to mention the appointment of officials to fill the positions.

It is worth recalling that the ministry of public works which was diluted under the previous government is being refurbished, and the trade and industry ministry was split into two separate institutions.

The slow pace of work within the bureaucracy seems to have frustrated many businesspeople who have placed high expectations on the new government.

There is a tendency among some economic ministers to bypass the bureaucracy by forming special committees and taking immediate action without going through the normal, if arduous, bureaucratic mechanisms.

This idea seems wonderful, but not so in practical terms. For example, the minister of mines and energy has promised to simplify and expedite the procedures of investment in the oil and natural gas sector. However, the bureaucracy has not moved to support the minister's commitment.

The Constitutional Court instead annulled the new electricity law and amended the new oil and gas law. High-profile cases such as those related to the extension of the MobilExxon contract for the oil field in Cepu and the disputes with Karaha Bodas and Cemex remain unresolved despite the government's pledge to settle at least one of them during the first 100 days in office.

Are we going to continue listening to wonderful speeches and sweet promises from the President and his ministers? That could be the case if the government does not improve its capacity to execute its policies. The government should realize that a lot has to be done to improve its capacity within a relatively short period of time. In addition, the President and his ministers should start to shift the focus of their attention from public relations to getting things done.

The central bank has supported the government's plan to stimulate the economy by easing its money policy. Bank Indonesia has steadily lowered its interest rate and prodded banks to expand lending. Consumer and commercial credits (for working and capital and financing trade) have indeed increased significantly.

However, banks remain hesitant and extra careful about lending to such long-term and high-risk sectors as infrastructure development. Moreover, most large companies are still in the process of consolidation and are not viable for large credits.

Despite the central bank's easing of legal lending limits with regard to financing for infrastructure, it is quite likely that only large state banks such as Mandiri and BNI will be able to make use of the new facility. Other major private banks will still focus on consumer and commercial lending, with relatively low risks and high returns, while they take a very limited participation in investment such as infrastructure projects with manageable risks.

Private banks are still able to gain profits from their consumer and commercial lending, so why should they go to high- risk businesses with modest returns such as infrastructure financing.

After 100 days in power, the new government should face reality. It is not only the political mandate that matters, but more importantly how it goes about effectively exercising the mandate to deliver on its promises to the people.

Considering the existing condition of the bureaucracy and the focus of banking sector, it is better for the government to adjust its policies and programs to this reality and get reasonable results. The government should focus on the problems that can be solved in the short run, to gain confidence and credibility, and synergize the available resources to achieve realistic targets. This is the time to get real and get the job done, while staying away from unfulfilled promises.

The writer is chairman of the Center for Information and Development Studies (CIDES), and a senior fellow at the Habibie Center.