Indonesia proposes grand $564 billion plan to rebuild the country

The skyline of Jakarta, Indonesia's capital city, on May 2, 2019. President Joko Widodo has a strategy of using infrastructure as a key plank to boost economic growth and spread wealth beyond the main island-powerhouse of Java, where the capital is located. PHOTO: EPA-EFE

JAKARTA (BLOOMBERG) - Indonesia is drafting ambitious plans for more than US$400 billion (S$547 billion) in building projects, from constructing 25 airports to developing new power plants, as the government seeks to stoke growth in South-east Asia's largest economy, according to the country's planning minister.

The sweeping proposal calls for a record 5,957 trillion rupiah (S$564 billion) in investments from 2020 to 2024, Minister Bambang Brodjonegoro said in an interview this week. As much as 40 per cent of the total will be funded directly by the government, 25 per cent through state-owned enterprises and the rest through the private sector, he said.

About 60 per cent of the spending will go towards transportation-related infrastructure, according to a draft of the plan seen by Bloomberg and verified by the ministry.

Such spending would build on President Joko Widodo's strategy of using infrastructure as a key plank to boost economic growth and spread wealth beyond the main island-powerhouse of Java, where the capital is located. Building critical ports and facilities are particularly complicated and costly in Indonesia because the country is dispersed across 17,000 islands over an area spanning the distance between New York and London.

"The only way for Indonesia to have higher economic growth is connectivity," Mr Brodjonegoro said in Jakarta. "We are planning to establish the equivalent of a highway for the skies by building airstrips or smaller airports for connectivity" in remote areas such as the Papua region, he said.

Despite the potential benefits, massive projects have been challenging for the government to finance in recent years, partly due to low tax compliance in Indonesia and weak commodity prices that have strained the state budget. Several projects have been shelved or delayed, even as bodies including the World Bank have warned of a massive infrastructure gap limiting economic growth.

Indonesia's economy has been expanding at about 5 per cent a year. While the government is aiming for growth of 5.3 per cent to 5.6 per cent next year, that's still short of the 7 per cent the president had targeted before his first term began.

The president, popularly known as Jokowi, is expected to be confirmed for a second term when official results of the April 17 election are announced next week. The ministry is preparing final documents on the investment plan to present to the president for approval, a ministry spokesman said.

The proposed investments exceed the US$350 billion infrastructure drive - then the largest in the nation's history - set during Mr Widodo's first term. The new spending plan is equivalent to about 5.7 per cent of gross domestic product from 2020 to 2024, during which the government has targeted economic growth of 5.4 per cent to 6 per cent, according to the draft of the proposal. The government is open to the possibility of financing some projects through debt, Mr Brodjonegoro said.

According to the draft plan, about 17 per cent of the infrastructure spending will go towards energy, followed by 10 per cent for irrigation.

The proposal also calls for the upgrade of as many as 165 existing airports and the development of water-based facilities for seaplanes to access remote islands, Mr Brodjonegoro said.

Better infrastructure would also complement the government's efforts to attract more tourists to help narrow the current-account deficit, which widened to a four-year high in 2018 and pressured the nation's currency, bond and stock markets.

Separately, the minister said the government will push for certification of the domestically developed N219 propeller plane to support the expanding air-travel and tourism industries in the nation of more than 260 million people. The head of state-owned PT Dirgantara Indonesia, the maker of the aircraft, said on Monday (May 13) that he expects local regulators to approve the plane this year.

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