Infrastructure was believed to be accelerator of Indonesia’s economic development. Indonesia’s economic growth process relied much on infra structure like, roads, bridges, drainage system, electricity and water supply.
The Government’s role as facilitator and mobilizer in development was most strategic in promoting people’s welfare and economic growth. Economic development was one of the indicators of achievement and served as guideline in determining the course of progress for the future.
Positive economic growth was indicated by activities of economic advancement. By theory, economic growth of a country was determined by accumulation of capital, i.e. investment in land, equipment, facilities and infra structure and human resources in quality or quantity, advancement in technology, access to information, willingness to innovate and develop, and working ethos.
So far the Government of RI had issued some policies to support the businessworld in executing development in all of Indonesia.
The first priority was the Government of RI would ask the Provincial Governments to facilitate an assure convenience for investors to do business well. The second priority was to step up infra structure development in all of Indonesia like roads, bridges, harbors, airports, housing and powerhouses which would contribute to the process of minimizing unemployment.
Beside employment, infrastructure projects also made economy to move more dynamically. Infra structure development means signal that the Government would seriously propel economy to be responded positively by marketplayers. For that matter financing for infrastructure should be allocated in APBN of APBD state budget.
Thereby unemployment was expected to be minimized and economic infra structure needed to propel the real sector could be developed so the real sector could be energized. The third priority was to protect and help the low income group in their struggle for better welfare.
In view of the above priorities it was most relevant to maka analysis of the impact of infra structure building on Indonesia’s economic growth. The result obtained was expected to support prioritizing of infra structure projects. Since infra structure projects were capital intensive, employment of workers would be the determinant factor in the process of economic growth.
Basic infrastructure had its positive impact on Indonesia’s economy as infrastructure facilitates played their important role in the process of marketing, i.e. production, distribution and sales. The policy to build infra structure was right indeed and therefore called for support from all stakeholders.
In this case physical asset and human capital were the key factors economic growth. Physical readiness was complementary to capital investment.
In case of Indonesia’s economy, although growth performance had not reached the pre-crisis level, sound fundamental economy in tandem with betterment of micro and macro risk had caused some international rating agencies to give positive rating to Indonesia, thankfully Indonesia was again given the rating agencies. Amidst the said positive state, at the medium term level Indonesia’s medium term level had to face hard challenges, i.e. handicap in the production of complementary components which held back the process of economic advancement.
In their latest report, World Economic Forum (WEF) disclosed that Indonesia’s competitive edge was still low especially on the infrastructure side, technological readiness and innovation. WEF evaluation showed that the most binding constraints faced by Indonesia was still in those there areas over the past few years.
More specifically the constraints in the infra structure side was indicated by low quality of roads, harbors, airports, railway, and power supply while the minus point in technological readiness and innovation was in terms of technological mastery and innovation capability which was still low.
In terms of infra structure rehabilitation, the obstacles faced financing and legal assurance. The allocated Government’s budget for infra structure in the past few years was only around 1,6% of GDP. The ratio was relatively low compared to other countries to China and India, which came to 5.3% and 7.3% of GDP.
The effort to restore infra structure was admittedly important in minimizing imbalance of income and its long term effect to per capita income. Infra structure building would contribute to increasing structure building would contribute to increasing productivity to support long term growth.
Report in World’s Development Report 1994 by the World Bank underscored that infra structure played its important role in enhancing economic growth. Higher economic growth was posted in areas where infra structure were better.
Review of infra structure development program in some countries concluded that most programs were targeted for the mind term program with focus on fulfillment of basic need and people’s connectivity including water, energy, electricity and transportation (roads, railways harbors and airports)
The conclusion was that economic growth correlated significantly with infra structure quality in a certain region by quality and quantity. In Indonesia many research studied correlation between infra structure and economy and the result was varied.
The only thing was that infra structure development policy concentrated in Java and West Indonesia had caused disparity in percapita income among provinces. In the future policy for infra structure development which was evenly distributed should be the reference in the effort to narrow down inter-provincial gap.
Indonesia had strong growth demographic factor, Government’s economic policy which was pro-growth, growing middle class population and Government’s focus on infra structure development. Room for fiscal had been widened and budget for infra structure had been increased from Rp190 trillion to Rp.290 trillion in APBN-P Budget 2015.
The Ministry of Public Works an People’s Housing, the Ministry of Transaportation and Ministry of Agriculture had sizable budget allocation broken down as follows: the Ministry of Public Works Rp.33 trillion, the Ministry of Transportation Rp20 trillion and the Ministry of Agriculture Rp.16 trillion.
Besides there was other additional prioritized budget for infrastructure and connectivity Rp.12,9 trillion allocated transfer of fund to the provinces Rp.20.5 trillion. Meanwhile budget for infra structure development for economic growth Rp.49.8 trillion, fulfillment of basic need Rp.20.8 trillion and bridging Rp.43.5 trillion.
The fiscal reformation policy was basic step and important part of structural reformation of strengthen Indonesia’s fundamental economy among others by enhancing infra structure building to strengthen national competitiveness.
APBN-P 2015 budget was also designed to bring stimulus t Indonesia’s economy to constantly grow amidst tight regional competition.
Infrastructure was the propeller machine of growth; infra structure was seen as locomotive of development and national and provincial level. From the macro economy viewpoint, infra structure influenced marginal productivity of private capital while in the micro production cost.
Infra structure also had Its influence on quality of life of Man, among others in promoting consumption quality, increase of manpower productivity and access to employment and betterment of welfare and macro economy stabilization i.e. fiscal sustainability, development of the credit market and the impact on the labor market.
In a survey run in the USA, return on investment level in infra structure against economic growth was 60%. Study by Dunai Bank 1994 mentioned that elaticity of GDP against infra structure in a country was between 0,07% to 0.44% which means that increase of 1% alone in infra structure might cause GDP to grow by 7% to 44%.
The vital role of infra structure to propel economy had been proven by success of economic program relying on infra structure. One of them was the New Deal Program run by US President Franklin D. Roosevelt during the Great Depression of 1933.
The policy adopted by the US Government then was to spur on infra structure building whereby to create positive impact on economic growth and the result was that more than 6 million jobless people were put to work once again.
Business News - June 10, 2015