Published online by Cambridge University Press: 16 May 2019
In many ways, the policy and management bottlenecks in the infrastructure sector are a microcosm of the problems of the overall management of government in Indonesia.Peter McCawley (2016)
Infrastructure investment has been identified as one of the key catalysts for unlocking a country's overall economic potential, promoting growth, creating jobs and reducing poverty. Efficient infrastructure is also needed to lower distribution costs, make prices of goods and services more affordable, and improve living standards (ADB 2017). Good infrastructure brings better social and economic mobility, leading to better living conditions. For Indonesia, a country with a large population and an archipelagic territory, developing efficient infrastructure is important for ensuring sustainable and inclusive growth.
Infrastructure investments have been traditionally financed by public funds (OECD 2014). After the 1997–98 Asian Financial Crisis, Indonesia's infrastructure spending fell from around 9 per cent of GDP in the mid- 1990s to around 2 per cent in 2001 (OECD 2015). By 2014, infrastructure spending had increased to 3.6 per cent of GDP. This level, however, was relatively low compared to Asia's other high growth economies, which spent around 6 per cent of GDP on this rubric (OECD 2015). The political decision to maintain fuel subsidies in the wake of rising world oil prices had shrunk Indonesia's limited fiscal space, thus preventing the country from adequately funding infrastructure investment. As a result, Indonesia's infrastructure crumbled, leaving much of the population with insufficient access to basic facilities, including electricity, water and sanitation. Lack of quality transport and logistics infrastructure has, in turn, constrained local businesses from competing globally.
Under President Joko “Jokowi” Widodo, Indonesia aims to boost its infrastructure development. Specifically, Jokowi's Nawacita (nine priority programmes) prioritizes accelerating infrastructure development to connect the peripheries with growth centres and, promoting connectivity between islands in the archipelago (KSP 2016). Moreover, President Jokowi has created the Committee for the Acceleration of Priority Infrastructure Delivery (KPPIP), a special task force that has a mandate to coordinate policies among various stakeholders and to unblock stalled national strategic projects and priority projects. Arguably, Jokowi's development strategy has narrowly focused on building infrastructure and attracting infrastructure investment to address inequality, reduce poverty and promote growth (Warburton 2016).