One of the constraints on Indonesia’s otherwise high-speed economic growth are the so-called infrastructure ‘gaps’
. As Indonesia has grown over the past decades, infrastructure has suffered from chronic underinvestment and strain. President Joko Widodo recognised early on the practical implications of these gaps and how they drag on the country’s economic development. He has made infrastructure a priority and its development has become a feature of his popular appeal.
In an online webinar of 27 May, Senior Analyst Kyle Springer highlighted the challenges facing Indonesia’s infrastructure drive such as the new national capital, the geopolitics of infrastructure financing, and its potential role in Indonesia’s post-COVID recovery.
What have infrastructure gaps done to Indonesia’s economy? They have contributed to the uneven development of the archipelago, with economic activity heavily concentrated on Java and Sumatra. It has constrained Indonesia’s economic integration with the rest of the Indo-Pacific region despite being at its maritime core or “fulcrum”. The gap has seen Indonesia’s trade suffer from high non-tariff trade costs with other countries in the region.
Indonesia-Australia trade has been constrained by infrastructure gaps as well. For two G20 neighbours, one would expect to see more trade. Further, previously inaccessible economic opportunities will open up as new infrastructure is built.
The Perth USAsia Centre developed the Indonesia Infrastructure Map
, launched at this webinar, as a tool for our community to visualise this looming economic challenge. The map is an interactive resource and meant to help policymakers, business, academics see what is happening on-the-ground as infrastructure development unfolds throughout the archipelago.
Since 2010 we have seen an alphabet soup of new initiatives aimed at filling infrastructure gaps in countries like Indonesia.
They work alongside the long-standing Multilateral Development Banks like the World Bank and Asian Development Bank. China’s Belt and Road Initiative (BRI) and Japan’s Partnership for Quality Infrastructure (PQI), and the Beijing-based Asian Infrastructure Investment Bank the (AIIB) are prominent examples.
At the same time, countries have started using infrastructure loans and development programs as a tool to achieve their geopolitical objectives. Geopolitics now casts a shadow over Indonesia’s infrastructure development at a time where it needs more foreign assistance than ever. This makes it all the more relevant to have tools like the Indonesia Infrastructure map to help us understand how Jokowi’s infrastructure drive is unfolding across the country.
Issues discussed in the webinar included the following:
How are infrastructure plans changing Post-Covid?
What kind of infrastructure investment projects in Jakarta and Java would be competing with a new capital city?
- Post-pandemic, we will likely see the financial pressure that’s being placed on the budget force President Jokowi to make some hard choices.
- The president’s plan to build a new national capital in East Kalimantan, a $33 billion project, is on hold for the foreseeable future.
- Indonesia will need to turn its attention away from developing a new capital and address the serious infrastructure gaps that exist in other parts of the archipelago.
- Another will be a renewed focus on Indonesia’s healthcare infrastructure.
- There’s a proposed $250 million emergency loan from the AIIB that would go directly to supporting designated COVID-19 referral hospitals, strengthening laboratory capabilities, testing, contact tracing, etc.
- If the new capital moved forward, there was a risk that it would divert funds and political attention from other very important projects on other parts of the archipelago.
- Indonesia cannot abandon Jakarta’s dire infrastructure needs either. The city needs mass transit, flood control, and land subsidence mitigation infrastructure.
- Java is a heavily populated island and has a high concentration of national economic activity. That said, it still has serious infrastructure gaps of its own. There is no direct rail link between Jakarta and Surabaya, but one is planned. Goods move between both cities by truck and spend a lot of time in congestion.
Access Perth USAsia Centre’s Infrastructure Map and a range of Indonesia-related research and commentary here
You can watch a video of the full webinar below: