The Roles and Problems of Infrastructure in lndonesia

This paper examines the roles and problems of infrastructure in the Indonesian economy. By using the I-O models, this paper shows that infrastructure has a relatively high output multiplier and backward as well as forward linkages to other economic sectors, suggesting that infrastructure plays an important role in driving the Indonesian economy. However, the paper also indicates that the availability of infrastructure is insufficient to support the accelerated development of the Indonesian economy. Due to limited fiscal capacity, efforts of the government to develop infrastructure has in recent years been focused on encouraging participation of the private sector through a public private partnership (PPP) program. Several actions have been taken by the govemment to support the program. Unfortunately, these government actions have been less successful in encouraging the private sector to involve in the development of infrastructure. This is due to the PPP has several problems, including the overlapping functions of the multiple govemment regulations, the absence of a viability gap fund and a government's financial guarantee for the private sector when there is a delay in developing the planned infrastructure due to several unexpected problems, poor preparation in the projects' feasibility documents for the private sector, and the low capacity and commitment of PJPK (bureaucrats) to maintain partnership. All these problems should government address to attract more private sector involvement in the development of infrastructure.