INTERNATIONAL ECONOMICS

FOURTH SESSION 2018/2019

BACHERLOR ECONOMICS AND DEVELOPMENT STUDIES

Opinion about Public Economic

Issues Political and Provision

Written by:
Luthfi Achmad
12020117190179
IESP – IUP 2017

DEPARTMENT OF ECONOMICS AND DEVELOPMENT STUDIES

FACULTY OF ECONOMICS AND BUSINESS
DIPONEGORO UNIVERSITY
SEMARANG
2019
 Infrastructure economic issues political and provision in Indonesia

The infrastructure crisis is still faced by Indonesia. The infrastructure crisis is a big
challenge to mobilize investment capital that will support overall development. This is
indicated by the lack of quality and quantity of infrastructure. Both infrastructure physical
(such as roads and airports) and non-physical (such as electricity supply, social welfare and
health) Indonesia seems to have difficulty encouraging structural development and rapidly.

The Indonesian government is aware of the importance of improving infrastructure

conditions. However, Indonesia's infrastructure development is not an easy task because
Indonesia itself consists of around 17,000 islands. Governments in the post-Suharto era were
not as successful as Suharto, in achieving infrastructure development. This is mainly due to,

1. The different political contexts: democracy and decentralization in the post-Suharto

era imply that the central government can no longer use military power to acquire the
land needed for infrastructure projects. On the contrary, the government in the era of
democracy must rely on court decisions, namely a long process and the decision is not
always in accordance with the wishes of the government.
2. The central government today is not as strong as the government in the Soeharto era,
this has resulted in the development of large infrastructure projects becoming more
complex because coordination and communication between local and central
governments in Indonesia is weak.
3. The level of bureaucracy in Indonesia is very high - both at the central and regional
levels - which often results in delays (or cancellation) of infrastructure projects
because rule-setting at the central level usually covers macro issues, so that the
bureaucracy plays a large role and that causes an unclear coordination between the
center and the regions is not optimal.
4. There is a close relationship between the political elite and the corporate elite in
Indonesia (both at the central and regional levels), making the two groups focus on
improving their own welfare, not the welfare of the local community. This led to delays
in infrastructure development, for example when local political elites gave rights or
permits to friend companies (which might have helped to finance the campaign of
local political elites), while the company of the friend was unable to complete the
 infrastructure project. In fact, the granting of rights or permits is sold to third parties
by taking advantage. This means that a lot of valuable time has passed before the
infrastructure project is taken seriously.

Starting in Jokowi government era, infrastructure development began to appear and

develop rapidly. President Joko Widodo is looking for a new approach to achieving a
breakthrough that is urgently needed in order to improve infrastructure development in
Indonesia. For example, the government budget for infrastructure development has risen
sharply since Jokowi led the country (this is also possible because the government has cut
energy subsidies).

Furthermore, Jokowi appointed a number of state-owned companies (BUMN) as

major infrastructure project developers. These companies usually have more assets than
private companies and are also able to collect additional funds from banks (BUMN) more
easily. There is also an increase in capital injections from the state budget in several state-
owned construction companies. Another new tactic is to hold a tender in the year before
infrastructure projects are expected to begin construction.

In addition to funding problems, the biggest obstacle related to infrastructure

development in Indonesia appears to be land acquisition. The process of land acquisition
is a very complicated process (takes a long time and carries high costs) because many
landowners refuse to sell their land to infrastructure project.

Even though there is already Law No. 2/2012 concerning “Land Procurement for
Development in the Public Interest” designed to accelerate the process of land acquisition
(this law sets a deadline at each procedural stage and ensures protection for land holders)
but, this law fails to really accelerate development infrastructure. This failure was caused
by a lack of willingness from the government under the leadership of Susilo Bambang
Yudhoyono (SBY). SBY did not want to force people to sell their land because it would
certainly cause huge complaints among the people and supporters of human rights
(HAM).
 But in President Joko Widodo era, seems to be more courageous and less concerned
with (the possibility of) human rights allegations and prefers to see greater benefits for
society than benefits for a few people. Jokowi actually supports several large
infrastructure projects such as the Batang steam power plant (PLTU) in Central Java and
the Balikpapan-Samarinda toll road, although parts of the local community continue to
protest against the project and refuse to sell their land. This should also be considered a
sign to investors that the Jokowi government will not allow important projects to be
postponed. However, critics say that people who are forcibly displaced have difficulty
finding new sources of income and face difficulties in adapting to the new social
environment. Critics also say that ordinary people (who are forced to sell their land) have
very little room to negotiate for fair compensation through Law No. 2/2012.