Indonesia will start less than half of the infrastructure projects it planned for this year because of difficulties acquiring land and as soaring fuel-subsidy costs forces the nation to cut budget spending.
Outgoing President Susilo Bambang Yudhoyono’s government will start work on 13 out of the 34 projects it had targeted this year, Deputy Planning Minister Dedy Supriyadi Priyatna said in an interview yesterday. Those that will proceed, with total investment estimated at about $16.7 billion, include trans-Sumatra toll roads and railways in Kalimantan, he said.
The last ditch attempt to kickstart projects before Yudhoyono hands power to the winner of the July 9 presidential election underscores his struggle to build more roads, ports and airports over two terms as leader of Southeast Asia’s biggest economy. Failure to fix the infrastructure gaps has exacerbated domestic supply challenges and leads to persistently high logistics costs and inflation.
“The current president is trying to leave a good legacy before his term ends in October, even though infrastructure projects take a long time, not months,” said Eric Alexander Sugandi, a Jakarta-based economist at Standard Chartered Plc.
A presidential decree is being prepared to expedite the projects, Coordinating Minister for Economic Affairs Chairul Tanjung said after a ministerial meeting in Jakarta yesterday.
Among the projects that will proceed are a planned 26 trillion-rupiah ($2.1 billion) expansion of the Soekarno-Hatta airport in Jakarta, railways in Kalimantan estimated at 59 trillion rupiah, a 14.9 trillion-rupiah port and a 25 trillion-rupiah power plant in South Sumatra, Priyatna told Bloomberg News.
“These projects will become new problems for the new government if all these projects only start with groundbreaking without no certainty that all these projects should be completed,” said David Sumual, chief economist at PT Bank Central Asia in Jakarta.
The nation has struggled to build roads, hospitals and schools with a fuel subsidy program that swells with foreign-exchange and oil-price movements. The government said June 16 it will cut 2014 spending among ministries by 43 trillion rupiah as surging subsidies force cut backs elsewhere.
Fuel imports, weak exports and slowing investment are driving a current-account deficit that is weighing on the rupiah. The rupiah fell to a four-month low yesterday and has dropped 6.1 percent this quarter, the worst performer among 24 emerging-market currencies tracked by Bloomberg.
The camps of Indonesia’s two presidential candidates -- Joko Widodo, the Jakarta governor who’s narrowly leading polls over his opponent Prabowo Subianto -- have signaled they will cut fuel subsidies gradually.
Both have also pledged to build roads and improve infrastructure. Widodo wants to focus on sea transport and to build double-track railways in Java, Sumatra and Papua, while Prabowo’s policy platform includes increasing tax collection and borrowing from capital markets to spend around $60 billion each year on infrastructure.
Indonesia parliament’s budget committee approved a revised 2014 budget this month, widening the deficit target to 2.4 percent of GDP from 1.69 percent, and cutting the economic growth target to 5.5 percent from 6 percent. Fuel subsidies are estimated at 246.5 trillion rupiah, up from 210.7 trillion rupiah previously.
Bank Indonesia held its key interest rate for a seventh straight meeting this month, citing risks from the global economy as growth slows. Higher interest rates, declining exports and slowing investment cut GDP growth to 5.21 percent in the first quarter from a year earlier, the weakest pace in more than four years.