Interview: Bambang Brodjonegoro
How is the government allocating expenditure and resources to reduce inequality?
BAMBANG BRODJONEGORO: Spending to cover Indonesia’s basic needs – such as infrastructure, health and education – must come from the public budget. We have identified the regions with the highest rates of poverty, unemployment or inequality, and we allocate resources where they are needed to address those issues.
West Java, for instance, has a 9% poverty rate, which is lower than the national average but much higher than the rate in East or North Java. Public spending in Java is significant, as expenditure is targeted towards those categorised as “extremely poor”. To improve the position of these disadvantaged individuals, we are using conditional cash transfers, food vouchers, health insurance and educational support.
Apart from poverty, the budget focuses on basic infrastructure, such as water sanitation, roads and power generation, which requires greater allocation of resources to remote regions to improve inter-island connectivity. President Joko Widodo aspires to build Indonesia from the bottom up, so funding must be distributed to reduce income as well as regional inequality.
However, infrastructure funding can also come from private sources. We are promoting the participation of state-owned enterprises (SOEs) and public-private partnerships (PPPs) in revenue-generating infrastructure, such as power plants, airports, sea ports and hospitals. We are aiming to diversify our funding sources beyond debt financing. With more and more projects awaiting implementation, equity must be increased to further leverage debt. To that end, the government is prioritising equity financing and investments.
What key challenges are facing the private sector?
BRODJONEGORO: A key challenge facing the private sector is regulatory uncertainty. For PPPs, a government-guaranteed political risk scheme is already in place for SOEs. This structure is similar to that employed by the insurance sector, as a company buys premiums and obtains a guarantee in case of instability.
More troubling for investors, however, is regulatory uncertainty in terms of consistency. Regulations often change after a few months or years, which affects project implementation. Because of this, authorities must consult the president before enacting legislation to ensure that any new regulation does not conflict with an older one. In addition, land acquisition procedures have improved, as negotiations between landowners and project developers are now subject to court rulings.
Moreover, the State Asset Management Agency has been established to fund land acquisition for infrastructure. The government also created a list of strategic projects it will provide regulatory and financial support for. Another issue that has yet to be resolved is the change of legal status – for example, certain land plots may be legally considered protected forest, though they have long since been converted into urban areas.
What are the government’s development priorities?
BRODJONEGORO: When the Medium-Term Development Plan 2015-19 was first outlined, our focus was to finalise projects that had been delayed. For the next five years, however, we are focusing on bridging the infrastructure gap and developing human capital. Infrastructure will only support economic growth if our citizens have the relevant skills, so we are prioritising vocational training. We must prioritise urban infrastructure to support a knowledge-driven economy, as 52% of Indonesians lived urban areas in 2018. By 2045 this figure is forecast to grow to 70%.
We also have to anticipate changes Industry 4.0 will bring, focusing on strategic manufacturing segments. We have selected food processing, electronics and chemicals in particular to maintain our competitiveness and create jobs. Automation could cause some jobs to become obsolete, but any occupation that requires a human touch will survive even in the era of automation.
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