New partnership for infrastructure in Indonesia

New partnership for infrastructure in Indonesia

Jemal-ud-din Kassum, Jakarta

The terrible tragedy in Aceh has shown us the power of people
uniting to work together to overcome and rebuild. We should use
this lesson to address another, less obvious crisis that is
affecting the lives of many poor people in Indonesia: The growing
shortage of quality infrastructure services. Over 40 percent of
Indonesians do not have access to electricity. Only 14 percent of
the people are connected to a regional water utility and access
to proper sanitation is shockingly low.

There is a large backlog of road investments, and congestion
imposes a heavy burden. Fixed-line telephone access is the
lowest in the region, affecting Indonesia's competitiveness for
investments. These infrastructure constraints are holding back
both economic growth and access to basic services, especially for
the poor. Unless they're addressed, Indonesia will not be able to
achieve its development goals for job creation and poverty
reduction.

At today's Infrastructure Summit, we heard some remarkable
statements of commitment from the new government for a new way of
doing business in infrastructure in Indonesia. President Susilo
Bambang Yudhoyono called on all of us to join in a new
partnership to resolve Indonesia's infrastructure needs.

The Government has shown real determination to move ahead with
urgently-needed reforms to improve investment and reduce
corruption. It will take time and persistent effort to change the
status quo. There are strong entrenched interests that will
resist efforts to put in place a more transparent and cost
effective framework for infrastructure development.

A shared commitment is needed to improve the quality and
efficiency of infrastructure services to make a real difference
to the lives of Indonesians. Imagine a high-grade highway that
will connect the major economic centers in the country;
increasing access to the nearly 90 million people that currently
do not have electricity today largely with the help of small-
scale producers of renewable energy; a gas pipeline that will
connect abundant gas fields in Kalimantan to the power plants and
industrial consumers in Java; or ramping up access to potable
water throughout the country through local government
initiatives. This can be the Indonesia of tomorrow -- if we
start today.

We know this will be expensive. It is estimated that
Indonesia will have to invest at least US$15 billion each year --
an extra investment of 2 percent of GDP on top what is currently
being spent -- over the next five years on infrastructure to
support an annual growth rate of 6 percent. Additional funding
will also be needed to maintain and optimize existing assets.
Experience also teaches us one important lesson: Whether
infrastructure is owned, managed and financed by the public or
private sector, a sound policy environment is the key to success.

In Indonesia a large share of the funding for infrastructure
will continue to come from the public sector in the near future.
But, given the constraints on budget resources, public funds must
be used strategically to catalyze private investments in
infrastructure and support projects that are important but cannot
attract private finance. Public utilities must be made more
efficient so that they make the most of existing assets.

More broadly, the central government has an important role to
play in providing direction to Indonesia's infrastructure
strategy, and to coordinate activities across sectors, space and
time. This is especially important in a decentralized Indonesia.
Local governments and communities have an increasing role in
infrastructure decisions and sector governance.

The private sector will be expected to provide a growing share
of the financing for infrastructure development. Despite a
recovery in investment over the past year, and a recent upgrade
in Indonesias foreign currency credit rating, the overall
investment climate in the country still ranks very low in the
region. Potential investors complain most loudly about policy
uncertainty and corruption, holding back infrastructure
development.

Yesterday the Government announced its willingness to
guarantee Government performance and regulatory risk in certain
defined areas and in cases where it is absolutely necessary, to
attract private investment. This is a welcome step in the right
direction. Government's plans to put in place a risk allocation
and mitigation framework to comprehensively evaluate each project
proposal will help ensure that public funds are used in the most
efficient manner.

The private sector is needed for more than just funding. It
may be the most efficient and effective way to deliver
infrastructure services -- provided it is able to operate in an
environment characterized by competition, adequate pricing
arrangements, and adequate regulation.

The private sector also has a responsibility to behave as good
corporate citizens and hold themselves to the standards of good
governance, transparency, and accountability which they
themselves would ask for from government, and also meeting world
class standards of environmental and social sustainability.

We must agree that the infrastructure puzzle cannot be solved
through a single entity. Instead, it takes all stakeholders --
central government, local authorities, private sector and
communities -- focusing on their distinct roles, but working
together in partnership to provide Indonesians with the quality
of infrastructure services they deserve.

Indonesia has the opportunity now to build on the current
momentum, and the clear commitment of the new government, to make
a real push on infrastructure development, with concrete goals
and measurable progress over the near term. We now need to move
from vision to action -- here as President Susilo noted so well
today, we all have a role to play.

The writer is the World Bank's Vice President for East Asia
and the Pacific. This is an abridged version of his remarks at
the Indonesia Infrastructure Summit in Jakarta on Jan. 17, 2005.