"Keberhasilan pembangunan adalah tiadanya tuna wisma, tuna karya, anak jalanan di usia sekolah, dan sepinya lembaga-lembaga pemasyarakatan."
~Arip Nurahman~
By: Zafar Iqbal and Areef Suleman
ECONOMIC RESEARCH AND POLICY DEPARTMENT (Islamic Development Bank)
INTRODUCTION
Infrastructure projects are identified by the President of Indonesia Susilo Bambang Yudhoyono as one of his major priorities over the next five years in efforts to boost growth and reduce poverty.
The Islamic Development Bank (IDB), in partnership with the Asian Development Bank (ADB) and the International Labour Organisation (ILO), embarked on a country diagnostic study for Indonesia based on the growth diagnostics framework originally developed by Hausmann, Rodrik, and Velasco (2005)1. The study provides an analysis of the constraints hampering sustainable and inclusive growth in Indonesia. These constraints are explored in greater detail with a view to determining the most binding constraints.
In order to relax these constraints, they are prioritized, and then remedial measures are suggested with a view
to providing guidance to Indonesian policy makers, development planners, and donors in formulating Indonesia-specific growth strategy.
The study examines critical constraints in three areas:
i) economic growth;
ii) poverty reduction and inequality; and
iii) employment.
In the area of economic
growth, weak infrastructure was identified as the most critical bottleneck. This aspect of the study has been undertaken by the IDB. The slow pace of infrastructure development and its poor quality are attributable to the low level of investment by both the public and private sectors in Indonesia.
The low-level of public investment may be due to limited financial resources and weak institutional and human capacity, which adversely affect the government’s ability to identify, design, and implement suitable infrastructure projects. Private investment, on the other hand, could be hampered by low appropriatibility (related to weak governance and corruption), decentralization of infrastructure development, resulting in additional rent-seeking activities, non-availability of long-term financing, and land acquisition problems.
Public-Private Partnerships, which have been viable elsewhere in the world to overcome government’s limited financial capacity, have been unsuccessful in Indonesia due largely to government failures in developing appropriate bankable projects, weak legal and regulatory framework, and a lack of information on infrastructure projects. It must be noted that these factors may merely be symptoms, masking the underlying causes. In order to identify the root causes, the problems hampering infrastructure development need to be examined in greater depth.
References:
1Hausmann, R., D. Rodrik and A. Velasco, 2005, “Growth Diagnostics,” John F. Kennedy
School of Government, Harvard University.
Download the Book Report:
http://www.isdb.org/irj/go/km/docs/documents/IDBDevelopments/Internet/English/IDB/CM/Publications/SpecialReports/IDB_Diagnostic_Study_on_Indonesia_Critical_Constraints_to_Infrastructure_Development.pdf
