Indonesia May Spend $250 Billion on Infrastructure
Indonesia will probably spend $250 billion on infrastructure development in the next five years, investments that will spur the economy and ease bottlenecks that have crimped growth, according to Morgan Stanley.
Public and private investment in infrastructure may be equivalent to 5.9 percent of gross domestic product in 2015, from 3.9 percent in 2009, Morgan Stanley economist Deyi Tan wrote in a May 10 report. That will boost growth to 7.2 percent by 2015, she said.
Indonesia is one step away from its first investment grade rating in more than a decade as President Susilo Bambang Yudhoyono targets growth of as much as 6.6 percent through the remainder of his term ending in 2014. He plans to double spending on roads, ports and airports to $140 billion by then after inadequate infrastructure hampered growth.
“Reforms have been building to a critical mass and broadening out over the past five years,” Tan said in a phone interview in Singapore yesterday. “The macro environment now is also a lot more supportive” compared to a few years ago, she said.
Standard & Poor’s, which boosted Indonesia’s debt rating to BB+ last month with a positive outlook, says infrastructure shortfalls are among key obstacles to achieving higher growth. Four out of the top five international airports in the world’s fourth-most populous country are operating above capacity and 15 million households have no access to electricity, Tan said.
During Yudhoyono’s first five-year term, only 125 kilometers (78 miles) of toll roads were built. In China, 4,719 kilometers of expressways were added in 2009 alone. Indonesia aims to build 20,000 kilometers of roads and add 15,000 megawatts of power generation by 2014.
“We think sectors such as electricity and roads are likely to see more increases in spending than others due to a relatively more developed pace of reforms and comparatively greater government focus in those areas,” Tan said.
Banks, toll road operators and cement and steel companies may benefit from the infrastructure spending, Hozefa Topiwalla, a Morgan Stanley analyst in Singapore, said in a separate May 10 report. It has an “overweight” rating on PT Bank Rakyat Indonesia, the nation’s largest bank by revenue, and PT Indocement Tunggal Prakarsa, the nation’s second-largest cement maker.
Investors from Japan and India in December and January signed about $39 billion of accords for projects from mass rapid transit systems and power plants to steel factories and ports. South Korea’s Lotte Group said it may invest $5 billion in a petrochemical project.
Indonesia’s improving public finances will enable the government to take on a “more active” role in providing infrastructure funding compared with six years ago, according to Morgan Stanley.
“With the public debt ratio having already fallen to 26.1 percent of GDP in 2010, one of the lowest in Asean, we think there is scope to take fiscal deficits gradually higher in support of infrastructure projects without jeopardizing public balance sheet or liquidity conditions,” Tan said.
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