Thu, 03 Mar 2011

From: The Jakarta Post

By Rendi A. Witular, The Jakarta Post
President Susilo Bambang Yudhoyono launched on Feb. 22 a blueprint for the nation’s economic development for the next 14 years. Inside the plan was an ambitious policy to develop economic corridors on the archipelago’s five major islands. The Jakarta Post’s Rendi A. Witular looks into the issue:

Balanced regional development propelled by domestic resources was the basic idea behind the economic corridor policy, which was widely praised by local administration officials and businesspeople.

The policy was included in the government’s 2011-2025 acceleration and expansion economic development blueprint.

Questions, however, linger as to whether the policy will actually work.

Under the scheme, the government plans to build economic clusters and business centers on all of Indonesia’s major islands to support their unique local economies.

The corridors were defined as six economic development highways, mostly located along coastlines, which would connect economic growth centers on five islands: Java, Sumatra, Kalimantan, Sulawesi and Papua, according to the blueprint, a copy of which was recently obtained by the Post.

For example, the northern coast of East Java would be developed as a hub for the petrochemical and shipyard industries, while the province’s inland areas would be developed as centers for the food and beverage manufacturing sectors.

South Sumatra and Riau would become the nation’s hubs for the oil palm processing industry under the scheme, while Bali and Lombok would be centers for the tourism industry.

Remote and isolated Papua has been slated to become a center for gas, gold and copper exploration, while its southern parts would be allocated to food plantations.

“There has never been a concept or policy that has emphasized a province’s unique potential like this economic corridor [concept],” Papua Governor Barnabas Suebu said.

South Sumatra Governor Alex Noerdin had similar praise for the concept, saying the policy reflected a thorough effort to detach the national economic development from a focus on Java.

“There will be so many things to do. The hardest part will be to convince investors to come to our area, and to set up basic infrastructure,” he said.

While the government seems to have had a hard time in luring foreign investors to support such proposal, the resources of state companies will be deployed to help realize the scheme, with an expected investment of around US$90 billion slated over the next four years.

Coordinating Minister for the Economy Hatta Rajasa said state companies would become the basis for the economic corridor policy’s success.

“We have designed the policy so that state companies will enter first in order for local businesspeople to see a real example that the plan is really being implemented well,” Hatta said.

Hatta said the investment needed for the plan to work in the short-term would be provided by state companies, adding the government would allocate around 8 percent of the state budget to develop the basic infrastructure required for the program.

State-Owned Enterprises Minister Mustafa Abubakar even required all state company executives in attendance at a recent Cabinet meeting to stand and take a vow before Yudhoyono to endorse the scheme.

State-controlled Bank Negara Indonesia (BNI) said it would focus most of its lending this year to finance projects planned under the policy, according to BNI president director Gatot Suwondo.

“Our lending is expected to grow as much as 20 percent this year. Most of the lending will be to sectors and projects under the policy,” he said.

The ambitious policy was based on the Industrial Road Map developed by the Indonesian Chamber of Commerce and Industry (Kadin) and several associations in 2007 and on input from the National Economic Committee (KEN), according to KEN member Chris Kanter.

KEN, chaired by politically wired tycoon Chairul Tandjung, then forwarded the ideas to the Office of the Coordinating Ministry for the Economy.

“Businesspeople have praised the concept. We can now see an exact path for economic development for the next 14 years. This has somehow boosted our confidence,” said Chris, whose businesses were mostly engaged in logistics.

“But the problem with the private sector is that we will be skeptical about implementation unless there’s a success story within one or two years of the implementation of the policy.”

Chairman of the Indonesian Employers’ Association (Apindo), Sofjan Wanandi, said the policy was more realistic than before, and it would be Yudhoyono’s hallmark legacy in the economic sector if it could be realized.

According to Sofjan, the administration’s seriousness could be measured by a meeting between Hatta, several economic ministers and representatives of the nation’s 20 biggest conglomerates on Feb. 22 to promote the policy.

Yudhoyono is slated to meet with local businessmen at the end of March to discuss policy details and to find ways to prevent protracted impediments.

“The idea is good, but again more details are needed for implementation. The devil is in the details,” Sofjan said.

“We need a success story from two or three state companies engaged in the policy, then we will be convinced it really works.”

Hatta pledged to directly handle protracted problems by closely supervising the progress of each ministry so that investors would be convinced with the policy.

“The policy will not be left on paper. I’m tired of speaking merely of concepts and pledges. This time it will surely work.”

Mounting doubts are understandable. Numerous ambitious projects and policies have been launched by Yudhoyono’s administration. Most have run aground, leaving only a few success stories.

Protracted problems related to land procurement, bureaucratic delays, uncertainty in regulations and law enforcement, illegal fees, as well as uncoordinated central and local government policies have not been addressed thoroughly.

A set of draft laws needed for bureaucratic reform and accelerated land clearance have remained on the desks of government officials for at least three years without progress.

Less progress has also been seen on efforts to eliminate logistics bottlenecks, with the latest turmoil revolving around ferry transport between Java and Sumatra.

Cargo trucks have been trapped in lines as long as five kilometers for the last two weeks at Merak port in Banten and Bakauheni port in Lampung.

Mismanagement by state ferry company PT ASDP is blamed for the gridlock.

Poor transportation infrastructure has been widely blamed for keeping Indonesia’s economy from growing faster.

According to the Institute of Economic and Social Research (LPEM) at the University of Indonesia, the nation’s logistical costs are among the highest in the world, accounting for 14.08 percent of sales revenue. In comparison, logistical costs in Japan are 4.88 percent.

The government is eying 6.4 percent economic growth in 2011 over the 6.1 percent growth in 2010 that was propelled primarily by investments. Since 1999, Indonesia’s economy has been largely fueled by domestic consumption.

Local powerhouse: Container and bulk vessels queue outside Teluk Bayur Port in Padang, West Sumatra, on Feb. 8. The West Sumatra administration and state port operator PT Pelindo II have teamed up to expand the port and boost the local economy. The government has required state companies to set examples of success stories in developing local economies. AntaraLocal powerhouse: Container and bulk vessels queue outside Teluk Bayur Port in Padang, West Sumatra, on Feb. 8. The West Sumatra administration and state port operator PT Pelindo II have teamed up to expand the port and boost the local economy. The government has required state companies to set examples of success stories in developing local economies. Antara


Sumatra Corridors
Required infrastructure: Ports in Metro Medan, Dumai and Palembang. A trans-Sumatra railway, power plants and mine mouths and processing plants for coal.
Target: Regional growth increases 3.4 times to US$473 billion by 2030.

Java Corridors
Required infrastructure: Port expansions in Jakarta, Semarang and Surabaya, trans-Java highway and power plants.
Target: Regional growth increases 4.2 times to $1,282 billion by 2030.

Kalimantan Corridors
Required infrastructure: Barito and Mahakam river ports for barge loading, railway in Central Kalimantan, toll roads linking Central and East Kalimantan
Target: Regional growth increases 2.6 times to $152 billion by 2030.

Sulawesi Corridors
Required infrastructure: Irrigation network expansion, port expansion in Makassar, Bitung and Kendari, power plants for nickel processing in Southeast Sulawesi.
Target: Regional growth increases 4.4 times to $94 billion by 2030.

Bali & Nusa Tenggara Corridors
Required infrastructure: Capacity expansion for Ngurah Rai International Airport, new airport international in Bali, cruise terminal in Tanah Ampo and Benoa, trans-Bali toll road, and power plants.
Target: Regional growth increases 4.3 times to $76 billion by 2030.

Papua & Maluku Corridors
Required infrastructure: trans-Papua highway, including to Merauke, Jayapura and Merauke ports, and coal-fired power plant in Urumka.
Target: Value of regional growth increases 6.3 times to $83 billion by 2030.

Source: Office of the Coordinating Minister for the Economy