Indonesia targets crumbling roads to boost economy
Collapse of Indonesia's 'Golden Gate' bridge highlights inadequate roads that hold back the Indonesian economy, at a time when other Asian economies are prospering.
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Economists say that figure could be even higher if infrastructure improved. If it doesn’t, the economy could falter.Skip to next paragraph
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“You can’t keep growing at 6 or 7 percent if you have these huge bottlenecks,” says Dress-Gross, who explains that Indonesia’s ability to develop its infrastructure is important for regional stability, since an economic shock could send millions of people back into poverty. (Of the 134 million people the World Bank considers middle class, those who earn between $2 and $20 a day, the majority hover around the $2 mark.)
It could also have an impact on the United States, which is looking to enhance trade with Indonesia in the hope of boosting its own economic fortunes.
For now, logistics costs remain one of the biggest barriers to trade expansion. Nearly 80 percent of the country’s ports suffering from dilapidation and damage caused by lack of maintenance. That makes it cheaper for Jakarta to import apples from China than its apple-growing hub Malang, 430 miles away in east Java.
In the World Bank’s 2010 Logistics Performance Index, which ranks countries according to ease of trade, Indonesia fell 32 spots, to 75th out of 155 economies.
To correct the imbalance, President Susilo Bambang Yudhoyono has set out an ambitious $400 billion 15-year development plan, nearly a quarter of which will go toward projects such as highways, ports, and power plants. The country aims to extend its road network by 20,000 kilometers (12,400 miles) and add 15,000 megawatts of new power capacity by 2014.
“It’s the right time for Indonesia to get our act together,” said Suryo Sulisto, the chairman of the Indonesian Chamber of Commerce, which represents some of the country’s leading businesses.
He says legal guarantees, including the passage of a much-anticipated land acquisition bill, are needed before investors will be willing to put their money into infrastructure projects. Legislators on Wednesday approved the final draft of the land bill, which will make it easier for developers to obtain land for projects, such as toll roads, by allowing them to expropriate land for compensation. Analysts say the new law could increase Indonesia's chances of achieving an investment grade rating next year, sparking further investment. The one sticking point, say economists, is whether the government will have the political will to implement it, since land clearing has met strong resistance from local communities.
Corruption adds to the problem, say anti-graft officials, who suspect the bridge collapse in coal-rich East Kalimantan resulted from the use of insufficient materials. Built to resemble San Francisco’s Golden Gate, the 720-meter-long bridge was only 10 years old when it fell.
Drees-Gross says Indonesia could look to Colombia or Chile as examples of countries with similar sized economies that have been good at expanding water supply coverage and attracting private investment in infrastructure.
Another example of a country that has been investing heavily in its infrastructure: China.
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