Building bridges: Indonesia and the infrastructure “cold war” – CIFP 2019, Jakarta

By Dr. Tomoo Kikuchi

Late last year, the Perth USAsia Centre was represented at the annual Conference on Indonesian Foreign Policy.  The following summary and overview has been prepared by panelist Tomoo Kikuchi and includes his own insights provided at the Conference.

The panel was moderated by Prof. Gordon Flake, CEO, Perth USAsia Centre. He highlighted the huge global demand for infrastructure investment, which is estimated at about US$ 3.7 trillion annually. In Southeast Asia, the media often highlights the rivalry between China’s Belt and Road Initiative (BRI) and other infrastructure investment initiatives by countries such as Japan, US, and Australia.  The reality on the ground is that the high demand is not being met and the global infrastructure investment gap amounts to at least US$ 1 trillion per year, which corresponds to about 1.4% of global GDP. The panel discussed how the gap can be narrowed particularly in Indonesia, which is the largest economy in ASEAN with a population of 264 million.

Dr. Ir. Ridwan Djamaluddin, Deputy Coordinating Minister for Maritime Affairs and Investment of Indonesia explained that his country is the maritime fulcrum of the region with its 16 thousand island and needs to invest in connectivity. He shared that his government currently finances 20-25% of infrastructure investment in Indonesia and is talking to big institutional investors such as sovereign wealth funds of various countries to invest in Indonesia. He highlighted some ongoing projects such the Jakarta-Surabaya medium speed railway and the emphasis on connectivity between urban and rural areas.

Mrs. Tang Qifang, Associate Research Fellow, Department for International and Strategic Studies, China Institute for International Studies (CIIS) acknowledged the huge infrastructure investment gap by citing the study by the Asian Development Bank, which reported that investment needs in the Association of Southeast Asian Nations amount to US$ 2.8 trillion with a gap of US$ 1.1 trillion in the period from 2016 to 2030. In Indonesia she stressed that all parties involved need to cooperate to fill the infrastructure gap of US$ 450 billion.

Dr. Sae Chi, Research Associate, Planning and Transport Research Centre, University of Western Australia observed that Jakarta has a high growth potential with its concentration of people and businesses. However, she pointed out that effective planning is essential to minimize the infrastructure gap. Effective planning involves robust assessment and policy decision and risk management. Good projects are projects that connect people to work and link goods to people and businesses she explained.

Dr. Tomoo Kikuchi, Associate Professor, Korea University argued that the differences in Japan’s and China’s approaches to infrastructure, China’s BRI on the one hand, Japan’s Partnership for Quality Infrastructure (PQI) on the other, come from the fact that the two countries are at different stages of development. He highlighted that the best practices from a developed country perspective may be not be the optimal choice for developing country as they often underestimate the positive externalities that infrastructure can have in supporting economic growth. However, he noted that there are serious concerns about the tradeoff between short-term political and economic interests and long-term liabilities. He stressed that ultimately the people are the stakeholders, who must benefit from public goods and bear the costs in terms of taxes, tolls, and fees as well as non pecuniary costs such environmental damages. He concluded that Indonesia doesn’t need to subscribe to a single model but instead can take advantage of both China’s hard and Japan’s soft approaches, control for their merits and demerits and make them suit the Indonesian blueprint. Lastly, he pointed out that Indonesia is one of the least financially developed country in ASEAN and Indonesian institutions such as development banks, long-term credit banks, other public investment-saving vehicles must be strengthened as Chinese and Japanese investments can only be complimentary to channeling saving into investment domestically.

Rainier Haryanto, PhD Candidate, University of New South Wales emphasized that more private capital is needed to fund infrastructure. While all countries compete the key to attract private sector funding is consistency in governance.

Trissia Wijaya, PhD Candidate, Murdoch University argued that we need to look beyond headlines and into the historical context and institutional aspects to understand the ongoing infrastructure competition in Indonesia. She claims that Japan has the best institutional understanding of Indonesia with its 60 years of involvement in the country. She noted however that the presence of China is getting bigger particularly after the global financial crisis in 2008. While China and Japan compete for projects, she explained that there is a political game of deregulation and regulation in allocating resources within the country.

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