SOE infrastructure development

drives Indonesia's economy

The Jakarta Post

Jakarta / Mon, February 25, 2019 / 06:47 pm

Massive infrastructure projects by state-owned enterprises (SOEs) have helped

Indonesia improve its logistical performance, although the country still lags behind
neighboring countries such as Singapore, Malaysia and Thailand.

Under President Joko “Jokowi” Widodo administration, SOEs have in the past four
years boosted their participation in infrastructure development to improve connectivity
between land, air and sea. This year,1,794 kilometers of toll roads will be
constructed, up from 1,254 km in the nine months of 2018.

“SOEs play a role as the agents of development, but they don’t necessarily have to
lose money,” said Aloysius Kiik Ro, the SOE Ministry’s deputy for business
restructuring and development.

So far, the trans-Java toll road, which spans from Merak Port in Banten to Surabaya
in East Java, has been completed, reducing travel time by car from 14 hours to nine
hours, he said.

In addition to shortening travel times and reducing logistics costs, the new toll roads
also help open new job opportunities and drive economic activities.

Besides the trans-Java toll road, state-owned company Hutama Karya has been
involved in the development of the trans-Sumatra toll road that spans from Aceh in
the western tip of Sumatra to Bandar Lampung in the east. Some 2,700 km in length,
it required a total investment of Rp 250 trillion (US$17.79 billion).

Hutama Karya president director Bintang Perbowo has said that this year, the
company will allocate Rp 40 trillion for toll road construction. All the financing will be
sourced from bank loans.

"The trans-Sumatra toll road, which is part of the Bakauheni-Palembang route, will be
completed hopefully before the Idul Fitri holiday. The toll road can reduce travel time
from 12 hours to six hours,” he said.

In addition to toll roads, the government has built 27 new commercial ports since
2015 to improve sea connectivity, as well as seven new airports in 2015-2017.

From year to year, the government increased infrastructure spending from Rp 388.3
trillion 2017 to Rp 410.7 trillion in 2018 and Rp 415 trillion in 2019, according to the
2019 state budget.
According to the Logistics Performance Index (LPI) released by the World Bank,
Indonesia climbed 17 spots from the 63rd position in 2016 to 46th in 2018. The LPI
measures a country’s logistics supply chain.

Despite the improvement, Indonesia still lags behind its neighboring countries;
Singapore ranked seventh, Thailand 32nd, Vietnam 39th and Malaysia 41st in 2018.

Infrastructure development plays a crucial role in boosting Indonesia’s

competitiveness in the region. But observers have pointed out that the effort cannot
be made by SOEs alone, because the projects have to be financed by many
alternative sources, partly by bank loans from state-owned banks.

According to Bank Negara Indonesia (BNI) risk management director Bob Tyasika
Ananta, state-owned banks disbursed Rp 330.2 trillion in loans for infrastructure
projects in 2018. They included Rp 182.3 trillion from Bank Mandiri, Rp 110.6 trillion
from Bank BNI and Rp 37.3 trillion from Bank BRI.

However, the contribution from state-owned banks are not enough to finance massive
infrastructure projects and banks have limitations. The challenges that banks are
facing include the discrepancy between their ability to provide funds and
infrastructure financing needs, which are normally long term or more than 10 years
on average.

Responding to these challenges, Aloysius said the government has called on SOEs
to find alternative sources of funding, such as cross-border securitization and the
issuance of green bonds.

https://www.thejakartapost.com/news/2019/02/25/soe-infrastructure-development-drives-
ris-economy.html
 Election cash splash spurs
Indonesia's economy
Bloomberg

Jakarta / Tue, March 26, 2019 / 02:41 pm

Indonesia’s economy, the biggest in Southeast Asia, is getting a boost from an

election campaign that’s kicking into high gear.

With the first-ever simultaneous presidential and legislative elections drawing closer
on April 17, spending by the government and political parties is already in overdrive.
From the printing of pamphlets to mass gatherings, election activity has intensified in
the past two weeks and is set to pick up in coming days.

“Indonesian people mostly have a short memory and so politicians mostly spend just
days before the election,” said David Sumual, chief economist of PT Bank Central
Asia in Jakarta.

That’s likely to give a temporary boost to economic growth, which has languished
around the 5 percent mark for most of last year. Preliminary data shows a surge in
government expenditure in the first two months of the year, while consumer spending
-- a key growth driver in a nation of 265 million people -- is also climbing.

President Joko “Jokowi” Widodo is leaving nothing to chance as he seeks to win a

second five-year term, showering local governments with billions of dollars in extra
funding and putting money in the pockets of voters with fuel-price caps and cash
handouts.

In the first two months of this year, central government spending grew 14 percent
from the same period last year to 145.7 trillion rupiah ($10.3 billion), with outlays for
social assistance surging 70 percent.

The government will increase fuel subsidies to 100.6 trillion rupiah this year and plans
to almost double the budget for its conditional aid program -- which helps 10 million
families -- to 34 trillion rupiah. Transfers to regional and local governments will climb
more than 9 percent to 827 trillion rupiah.

While economic growth of about 5 percent in Indonesia is respectable in an

environment of slowing global expansion, it’s well short of the 7 percent promised by
Jokowi -- as the president is known -- when he came to power in October 2014. The
president is eyeing growth of as high as 5.5 percent next year, which would be the
fastest pace since 2013 and up from this year’s estimated 5.3 percent.

The central bank said the fiscal boost will help the economy maintain its expansion of
about 5.2 percent in the first quarter.
“The government’s fiscal stimulus for social assistance has been high, which pushes
economic growth particularly in terms of consumption and people’s purchasing
power,” Bank Indonesia Governor Perry Warjiyo told reporters in Jakarta on Friday.

“The main supporting factor is strong consumption, whether of the private sector, the
government, or non-household government institutions, in relation to the election
preparation.”

The spending surge may turn out to be a vote winner for Jokowi, who faces former
general Prabowo Subianto in the presidential vote. The opposition leader, known
more commonly by his first name Prabowo, is behind in the polls, but is working hard
to win over voters by showing his concern for bread-and-butter issues, such as living
costs and jobs.

The economic divide in Indonesia is stark. Last year, the capital Jakarta notched up
economic growth of 6.4 percent compared to Papua, a province in the far east of the
country, which contracted almost 18 percent. In Yogyakarta -- located on the island of
Java, which contributes almost 60 percent of the nation’s annual growth -- the jobless
rate last year was 3.35 percent, compared to 8.17 percent in West Java.

Josua Pardede, an economist with PT Bank Permata in Jakarta, said the 2019
election is already having an impact on consumption. Retail sales historically decline
in the first quarter of the year, he said, but figures from the central bank already show
a 10.9 percent jump in February from a year ago.

Low inflation and the possibility of interest-rate cuts are helping to underpin consumer
sentiment. Consumer prices rose at the slowest pace in almost a decade in February,
the currency has gained almost 2 percent against the dollar so far this year, and
economists from Goldman Sachs Group Inc., Morgan Stanley and elsewhere predict
rate cuts in coming months.

The biggest growth risks are coming from the global economy, with a slowdown in
China -- Indonesia’s biggest trading partner -- ongoing trade tensions, and weaker
export demand likely to weigh on Indonesia’s outlook.

“Indonesia is showing that even during the election time, the macroeconomic stability
and prudence continue to be in place,” Finance Minister Sri Mulyani Indrawati said
last week. “But, of course, we also understand that the headwind continues to
become even more challenging. The global economic environment is not easy.” (bbn)

https://www.thejakartapost.com/news/2019/03/26/election-cash-splash-spurs-indonesias-
economy.html
 Indonesia's digital economy to
dominate Southeast Asia by 2025
The Jakarta Post

Jakarta / Wed, November 28, 2018 / 09:59 am

A new study has found that Indonesia’s digital economy is poised to become the
largest in Southeast Asia as its market value triples to US$100 billion by 2025 from
$27 billion in 2018, promising more jobs and more consumer choices for an emerging
tech-savvy generation.

The annual “e-Conomy Southeast Asia” study, conducted by American tech giant
Google and Singaporean holding company Temasek, says the growth will be spurred
by four key digital services, namely e-commerce, with a contribution of 53 percent,
online travel (25 percent), ride-hailing services (14 percent) and online media (8
percent).

“We see that these sectors have grown big and they will continue to grow in the
coming years,” said Google Indonesia managing director Randy Jusuf during a press
conference on the study on Tuesday.

Google head of strategy and insights Samuele Saini noted that the growth might be
slightly higher than predicted because the study did not include emerging digital
businesses such as those related to finance, health and education.

He said a lack of data on these businesses meant the study was unable to make
reliable predictions.

A proliferation of digital services, particularly in e-commerce, diversifies product and

service choices available for Indonesia’s 150 million smartphone users — the largest
number in the region — especially for users located in more remote areas.

Similarly, homegrown e-commerce platforms Tokopedia and Bukalapak have

launched advertisements highlighting their expansive logistics networks that can
bring everything from electric guitars to rice cookers to even the remotest kampung
home.

Google’s report, which is available on Thinkwithgoogle.com, says the digital economy

will also increase employment opportunities as the average Southeast Asian internet-
based company will increase staff by 10 percent each year.

A 2018 McKinsey report supports Google’s finding as it estimates that the digital
economy could produce 3.7 million new jobs in Indonesia by 2025.
In addition to employment, Google’s report says the growth of transportation-
facilitated digital services such as Grab and Go-Jek, which operate in food delivery,
ride-sharing and logistics may triple “partner” jobs to 12 million region-wide in 2025
from 4 million this year.

However, even if Indonesia’s digital economy grows to the estimated $100 billion by
2025, it will contribute only 4 percent to a government target of $2.5 trillion in gross
domestic product in the same year.

The contribution remains smaller than that in developed countries such as the United
States at 6.5 percent or China (33 percent).

Nevertheless, Temasek portfolio strategy and risk group joint head Rohit
Sipahimalani said during an interview with CNBC last week that he was confident
Southeast Asia could “narrow the gap very rapidly” over the years to come.

“We’ve seen everything in the ecosystem slowly beginning to come together and
that’s going to make all the difference,” he said.

Sipahimalani was referring to six factors — funding, internet connection, consumer

trust, digital talent, logistics and payment methods — that limit digital economic
growth, according to last year’s e-Conomy report.

Randy said at Tuesday’s conference that Indonesia had made significant progress
with the first three factors, thanks to rising investor confidence, government
infrastructure programs and effective marketing campaigns.

However, there remained “room for improvement” in terms of the availability of digital
talent, logistics and payment methods, he said.

The government, for its part, promised to continue its infrastructure programs and to
focus next year’s development policy on building human resources.

In regard to payment, Google’s report says that internet-based companies need to

either partner or consolidate with other companies to increase the integration of
payment services in an otherwise heavily fragmented payment landscape. (nor)

https://www.thejakartapost.com/news/2018/11/28/indonesias-digital-economy-to-dominate-southeast-
asia-by-2025.html
 Manufacturing sector to drive
Indonesia's economy: Bappenas
The Jakarta Post

Jakarta / Mon, February 11, 2019 / 05:12 pm

The government believes the manufacturing sector will be the new engine of
economic growth for Indonesia and will, therefore, focus on its development in the
next five years.

National Development Planning Agency (Bappenas) head Bambang Brodjonegoro

said developing the manufacturing sector was vital to increasing Indonesia’s potential
GDP growth and, at least, maintain the growth in the long run.

“We need to somehow refocus on the manufacturing sector. Manufacturing is a

prerequisite for boosting economic growth,” Bambang said in Jakarta recently.

A joint report by the Asian Development Bank (ADB) and the Bappenas estimates
that Indonesia will see an average growth rate of 6.31 percent between 2020 and
2024 under the “good scenario”. This scenario projects the share of employment in
the manufacturing sector to increase gradually during the period to 20 percent of the
workforce by 2024.

Under the “bad scenario”, which assumes the share of employment in the
manufacturing sector will slightly decrease to 13 percent, the report estimates
Indonesia’s potential GDP growth rate to hit 5.52 percent on average between 2020
and 2024.

Indonesia’s manufacturing sector employs 14.72 percent of the workforce, according

to Statistics Indonesia (BPS) data from August 2018, while the agriculture sector
remains the country’s primary employer by using 28.79 percent of the labor force.

Developing the manufacturing sector is also essential to reducing the country’s

dependence on raw commodity-based exports with relatively low complexity and
linkages to other industries.

The country’s dependence on commodities is susceptible to price swings in the

market and therefore provides the Indonesian economy with a weaker platform
compared to downstream products of the manufacturing-based exports, Bambang
argued.

The minister said the next medium-term development plan (RPJMN), which was
being drafted by Bappenas, would stress on value-added creation in the economy,
particularly in the manufacturing sector, so that the country could diversify its export
products.
“By creating the value-added we can participate more in the global value chain. Our
product complexity will improve because of higher added value,” said Bambang.
“That’s the idea of our manufacturing strategy.”

The first step in developing the manufacturing sector be to boost the complexity of
exporting Indonesia’s natural resource, which means developing more downstream
products considering its abundance in the country as well as its major presence in the
country’s trade data, Bambang said.

Data compiled from Bappenas revealed that more than 30 percent of Indonesia’s
exports in 2018 was from commodity-based sectors such as coal, vegetable oil and
fats, natural gas, as well as petroleum and its derivative products.

ADB’s advisor in economic research and regional cooperation department, Jesus

Felipe, said collaboration between the government and private enterprises in the
manufacturing sector was essential to identify problems hampering the sectors’
development as well as new exports products.

“The government needs to initiate dialogue with the private sector to jointly identify
and address obstacles to the development of a modern manufacturing sector. It is
critical for policymakers and the private sector to collaborate in discovering those new
and more sophisticated products that Indonesia could successfully diversify into,” he
said.

ADB’s director general of Southeast Asia department, Ramesh Subramaniam,

concurred, saying the public and private sectors’ collaboration was vital in
determining the direction of upskilling workers to better fit industry demands along
with the development of the manufacturing sector.

Bank Mandiri chief economist Anton Gunawan said the government needed to have
comprehensive policies geared toward specific subsectors of the manufacturing
industry in order to more effectively develop the industry.

“We cannot really serve everyone’s interests, but we have to choose the kind of
policies [that need to be directed],” said Anton.

He also emphasized the need for the government to ensure a favorable business
climate in order to attract new investments in the manufacturing sector.

https://www.thejakartapost.com/news/2019/02/11/manufacturing-sector-to-drive-indonesias-economy-
bappenas.html
 Same old issues slow Indonesia’s
digital economy
Jakarta / Mon, March 18, 2019 / 09:05 am

The British like to drink tea and the Brazilians love to play soccer. Every country has
stereotypes attached to it, and while we must take each stereotype with a pinch of
salt, there is usually a grain of truth behind why a country is perceived in a certain
way.

Unfulfilled potential has always been the quintessential story of Indonesia. Whenever
you talk with someone who is familiar with Indonesia’s economy, you will most likely
hear the same thoughts.

Indonesia is a blessed country with huge potential, and we are advancing toward the
era of the digital economy. However, the same issues that have hampered Indonesia
for the last few decades persist, and these same issues prevent our digital economy
from skyrocketing.

First and foremost, technological development relies heavily on a skilled labor force.
Unfortunately, human capital has always been an obstacle.

Indonesia’s abundant workforce of 134 million people does not necessarily translate
into high productivity. According to the Global Competitiveness Index, labor
productivity is one of the key problems for Indonesia’s national competitiveness.

You can ask tech start-ups and they will all tell you the same story: It is very difficult
to find and hire good talent. The undersupply of talent causes cash-rich companies to
overcompensate and pay a premium on their workers, squeezing smaller companies
from hiring the right people. This is exacerbated by a brain drain of 9 million
Indonesians seeking better work abroad.

On top of human capital, a supportive ecosystem is also needed for our digital
economy to flourish. Easy access to funding for start-ups, the availability of mentors
and accelerator programs, and infrastructure such as fast internet are imperative.

Sadly, creating these ecosystems has never been our forte. As other countries are
gearing up for 5G internet, we are still playing catch-up. A few years ago, an
Indonesian ex-minister for technology even insinuated that we didn’t need fast
internet, since it would only be used for downloading illegal content.

If this issue resonates with you, it is probably because most Indonesians agree with
the fact that we are notoriously slow in building our infrastructure.
Data security is also an issue of utmost importance. We don’t need to look far to find
examples of what can go wrong in a digital economy. Mt Gox was a Japanese bitcoin
exchange, which at one point handled more than 70 percent of all bitcoin transactions
in the world.

The company had faced security issues since 2011 but despite these telltale signs
continued to take a nonchalant approach to data security.

In 2014, it declared bankruptcy after losing more than US$450 million worth of
bitcoins belonging to its customers. Hackers might not only be interested in monetary
rewards, but user data too.

We have more than 100 million smartphone users in Indonesia, and user data is a
goldmine of treasure. This explains why, when Cambridge Analytica clandestinely
used confidential data for political purposes, it became such contentious news.

The moral of the story is that data security and confidentiality are both vital. A breach
of trust in either may be irreversible, and consumers may find it difficult to embrace
digital technology afterward. At the same time, a strong set of rules to govern the tech
industry is important. It is extremely difficult for current laws — which were designed
without the foresight of technological progress — to be effective. Look at the legal
battles between conventional taxi operators and app-based ride-hailing platforms.

Although the latter have been operating in Indonesia for a few years and there are
now more than 91,000 ride-sharing vehicles in operation, we are still debating what
fares they should charge and whether the drivers should be classified as employees
or independent contractors.

Similarly, although financial technology has been around for at least five years, only
in 2018 did the Financial Services Authority issue concrete guidelines to regulate the
industry. Indonesia has consistently taken a reactionary approach toward designing
its laws.

To help our digital economy grow, we need to change course: New laws should be
designed based on forward-thinking coupled with the anticipation of how our
economy is changing.

In 2018, I cofounded Populix, a research startup, and thus I have first-hand

experience of how these key issues are preventing Indonesia from unlocking the
potential of its digital economy. Because Indonesia has always been mired by the
same old problems, neither an overnight solution nor a panacea exists.

The situation isn’t all doom and gloom, however. By being aware of the problems we
face, at least we know what needs to be done. In fact, 52 percent of young
Indonesians feel optimistic about the country’s economic future. We must therefore
take a structured and coherent approach toward solving the problems identified
above.
Having said this, it would be misguided to assume that the government could solve
these issues on its own. From app users to tech companies to venture capital
investors, what we need is a collaborative effort involving all stakeholders.

At the end of the day, a successful digital economy will benefit all Indonesians.

https://www.thejakartapost.com/academia/2019/03/18/same-old-issues-slow-indonesias-digital-
economy.html