Abstract
As a response to the global economic downturn, Indonesia’s government
has announced a huge fiscal
stimulus package centred on an infrastructure
construction programme. According to Finance Minister Sri
Mulyani
Indrawati, the programme may begin in March 2009. Indonesia has set aside
IDR90trn
(US$7.5bn) for the budget in 2009 for infrastructure spending and
an additional IDR8.4trn (US$703mn)
will be allocated for labour-intensive
infrastructure projects.
However, a key concern surrounds how the projects
are to be funded. The government has set up the
Indonesia Infrastructure
Fund Facility (IIFF) to attract financing for the projects. Thus far, the
Asian
Development Bank (ADB) has agreed to provide up to a quarter of the
funds required (IDR1trn). The
remaining IDR3trn may be provided by the
World Bank and the German Development Bank (KfW),
according to Bambang
Susantono, the deputy to the Coordinating Minister for the Economy in charge
of
infrastructure. However, the IIFF will probably be insufficient to cope
with the extra spending and we
would expect the government to issue more
bonds in the coming year.
In the power sector, similar issues are being
felt. State-power electricity firm PT Perusahaan Listrik
Negara (PLN) has
been facing mounting problems regarding financing for its expansion
programme.
Reuters reported that Chinese lenders are asking for higher
interest rates as a result of the global financial
crisis. Chinese banks
have thus far financed US$5.5bn of debt raised by PLN for its US$8bn
capital
expansion programme. However, the Jakarta Post reported in
February 2009 that China has actually only
dispersed US$2bn and has since
frozen further financing. Reuters quotes the executive director of PLN
saying that the construction work depends heavily on securing financing in
time, otherwise there are
bound to be delays. PLN' s current expansion plan
consists of investing US$8bn in 10,000MW of coalfired
electricity-generating capacity.
In the short term the construction sector
is being impacted by the financial crisis. Companies are finding it
difficult to raise financing for projects and liquidity conditions are tight.
However, the strong commitment
from the government through its economic
stimulus package should help to shore up growth. BMI
forecasts that the
construction sector will reach a value of US$78bn in 2013, up from a figure
of
US$38.8bn in 2008. It should be noted that Indonesia’s economy is
better placed to weather an economic
downturn, as it is not heavily
reliant on exports and thus the outlook is certainly among the most
positive
ones in Asia Pacific. This is expected to cascade in the
construction and infrastructure sector as and we
thus forecast that
Indonesia’s industry value real growth will remain on the positive side
during our
forecast period, registering on average a 6.3% annual
growth.
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