Wed, 27 Oct 2010

From: Reuters

Booming car sales are rightly touted as a sign of the strength of Indonesia’s economy and the emergence of a middle class with robust purchasing power. But Indonesia is selling cars faster than it is building roads, increasing gridlock in cities and doing no favors for its efforts to attract foreign investment.

Analysts expect Indonesia, Southeast Asia’s largest economy, to build just 14 kilometers of toll roads next year, about as much as India builds each day.

By contrast, the record number of 700,000 new cars being sold in Indonesia this year would stretch 2,800 km if placed end-to-end - as long as the main islands of Java and Sumatra together.

“How to accelerate infrastructure development, how to build more toll roads ... that’s something we are working on,” said Standard Chartered economist Fauzi Ichsan in Jakarta, where traffic and heavy rains can lead to four-hour commutes.

Gita Wirjawan, chief of the Investment Coordinating Board (BKPM), said there was no point to building cars if there were no roads for them to drive on.

But the problem is not only in Jakarta. Cities such as Balikpapan in coal-rich Kalimantan are now overrun with new sports utility vehicles.

The government aims to get 800 km of toll roads built by the end of its term in 2014, though infrastructure analyst Pandu Anugrah at Bahana Securities in Jakarta sees just half of that figure being realized - still a sharp improvement if it happens.

The focal point is the Trans-Java toll road, which would cross the archipelago’s main volcano-studded island to aid the country’s economic growth by improving trade.

It was due for completion in 2009, but wrangling over land acquisition means construction on some sections may not start until 2013.

The collapse this year of a new road being built to Jakarta’s main port is symbolic of efforts so far.

And the widespread flooding and gridlock that gripped the capital on Monday night could be a preview of a bleak future.

Inadequate transport infrastructure, from a lack of good roads and railways to a deadly air and shipping safety record, has long been a deterrent to prospective investors.

Now, with demand from a youthful population for consumer products booming and the government clamoring for foreign firms to use commodities from metals to cocoa to manufacture higher-value products locally, investors such as private equity firms are eyeing infrastructure as an investment opportunity.

President Susilo Bambang Yudhoyono, under pressure over the slow pace of action so far, plans to increase infrastructure spending by 28 percent next year to $13.6 billion, to build roads, bridges and new airports.

A law to speed up land acquisition for infrastructure is also expected.

“There are three main issues that we face in the toll road industry: land acquisition, land acquisition and land acquisition,” said Frans Sunito, chief executive of the country’s top builder of toll roads, Jasa Marga.

“We’re like a race car waiting for its track to be built.”

But Finance Minister Agus Martowardojo’s main priority is not to blow his budget, as he hopes for an investment grade-sovereign rating next year, which would drive down the county’s borrowing costs.

Agus admitted the state could only fund 35 percent of $140 billion of infrastructure needs in the next five years, leaving it reliant for two-thirds on public-private partnerships - a ratio many feel is not achievable given the investment risk.

“The thousands of kilometers of planned roads are not happening because the investment is not being released,” said Malcolm Llewellyn, chairman of the British Chamber of Commerce and a long-term Indonesia resident.

“Sorting out the roads is essential for us all and it will take 10 years.”