Infrastructure budget up in 2019

This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Investor Daily: 2019, Anggaran Infrastruktur Naik

8 August 2018

By Novy Lumanauw and Imam Suhartadi

Jakarta — The government guaranteed that infrastructure budget in 2019 will rise or higher than this year’s budget of Rp410.7 trillion. They also will not cease the ongoing infrastructure projects despite rupiah depreciation.

According to Cabinet Secretary Pramono Anung, the government will again increase infrastructure budget in effort to improve connectivity that will in turn make economic activities more efficient.

“The government allocates funds more than Rp110 trillion for infrastructure development in many areas across the country next year,” said Pramono Anung in the Presidential Place complex in Jakarta, Tuesday (7/8).

However, Pramono did not mention further whether the Rp110 trillion is an addition to this year’s budget or next year’s infrastructure budget will be more than Rp110 trillion. If the Rp110 trillion is the addition to this year’s budget, it means the 2019 infrastructure budget will hit Rp520.7 trillion.

“No, it’s not. There will be an increase in the 2019 infrastructure budget. The figure is over Rp110 trillion,” said Pramono.

Based on the Finance Ministry’s data, in the 2018 state budget, the budget for infrastructure development hit Rp410.7 trillion, compared to Rp388.3 trillion in the 2017 state budget, an increase of 5.8%.

Infrastructure budget increases every year. In 2014, the infrastructure budget reached Rp154.7 trillion, skyrocketing by 65.5% in 2015 to Rp256.1 trillion. The figure saw another increase of 5.1% in 2016 to Rp269.1 trillion, and soared by 44.3% to Rp388.3 trillion in 2017.

This year, the infrastructure budget is earmarked for funding the construction of new roads of 865 km, 25 km toll roads, and 8,695 km bridges.

In addition, it is also allocated for developing a carried-forward light rail transit (LRT) network spanning 23 km and building eight airports and 620 km-long railway tracks.

This year’s infrastructure budget of Rp410.7 trillion is also funnelled for funding the construction of information and telecommunications infrastructure, including integrated broadband villages in 100 locations and base transceiver stations (BTS) in 380 blank-spot areas.

Those allocations have not included the provision and quality improvement of houses for low-income society (MBR), which include 13,405 units of vertical housing and 180 thousand units of stimulant assistance.

Following the rupiah depreciation trend, the government recently claimed that they are re-evaluating a number of non-strategic projects. Their construction is very likely to be postponed. The government is worried that rupiah depreciation can cause infrastructure budget to swell since most of the materials are imported.

Moreover, if the importing of infrastructure materials continues, it can cause rupiah value to depreciate further. Year to date, rupiah has weakened by around 7% to Rp14,485 per US dollar, getting further away from the rupiah value assumed in the 2018 state budget of Rp13,400 per US dollar.

Data from the Statistics Indonesia (BPS) and the Finance Ministry revealed that the import of infrastructure materials from January to May 2018 amounted to US$4 billion. The huge amount of import needed for infrastructure projects places more burden on the trade balance, which by that time suffered a deficit of US$2.38 billion.

Rupiah depreciation caused by the sizeable amount of infrastructure material import is exacerbated by the increase in The Fed’s funds rate and trade dispute between US and China. The increase in the Fed’s funds rate and protectionism have prompted sudden reversal from emerging markets, including Indonesia, to the United States.

The large amount of infrastructure material import is feared to cause current account deficit (CAD) to swell. Until the end of 2018, CAD is expected to exceed US$25 billion, compared to US$17.3 billion last year.

Human Resource Quality

Cabinet Secretary Pramono Anung also expressed that President Jokowi when leading a Working Cabinet plenary meeting at the Presidential Palace, Jakarta, Monday (7/8), declared the 2019 state budget draft will focus on human resource development, however infrastructure development will still continue.

According to Pramono, President Jokowi believes there are still a number of things that should be done to improve land, sea, and air infrastructures, in addition to allocating a budget for building elementary, junior high and senior high schools which are neglected.

“Infrastructure in general is still the main focus, especially related to the improvement of land, sea, and air infrastructure,” he asserted.

Pramono Anung pointed out the 2019 state budget will highlight and focus on a drive to improve human resource quality because in the first stage for four years, infrastructure development program has run relatively well.

“As of 2019, the government wants to improve human resources to be of better quality and ready for global competition. As a country with the fourth largest population in the world, our human resources can support economic development in the future,” he mentioned.

Moreover, Pramono said Indonesia has become a member of G-21 nations. “In global competition, human resource quality is crucial. It is what the President concentrates on,” he closed.

He expressed that to improve the quality of human resources, the 2019 state budget will be allocated primarily for vocational programs and modern education.

“We have now entered revolution 4.0. We need to respond to that from various sides, including curriculum. The President several times emphasized it when talking to rectors, and he also brought that up to the Research, Technology, and Higher Education Minister,” he said.

A member of the House of Representatives Commission XI from Golkar Party Faction, Muhammad Sarmuji supports the government’s move to prioritize the 2019 state budget allocation on improving human resource quality.

“Actually improving human resources [now] is a little bit late. [We] need to fix it ASAP. To welcome demographic bonus, human resource development is a mandatory move in order to turn demographic bonus into advantages, not burden,” Sarmuji told Investor Daily in Jakarta, Tuesday (7/8).

According to him, both human resource and infrastructure development are important since they are the key to sustainable development.

“In order to achieve a better result, human resource development should be followed by productivity improvement. By doing so, Indonesia’s competitiveness will rise at a rapid pace,” he stated.

Upon being asked about the plan to raise infrastructure budget by more than Rp110 trillion, Sarmuji reckoned that infrastructure program remains crucial as Indonesia’s infrastructure still trails behind other countries.

“Only, with the current rupiah exchange rate, we need to be selective in building infrastructure which has a large import component,” he mentioned.

Meanwhile, the Centre for Indonesia Policy Studies (CIPS) claimed that the policy to create jobs in many areas also needs to be aligned with human resource development programs in the areas.

“It’s not enough that the government creates new jobs. The government also needs to focus on the prospective workers who will fill the new jobs,” CIPS researcher Imelda Freddy told Investor Daily.

According to her, if Indonesia workforce is not well prepared, there is a possibility that domestic jobs will be filled by foreign workers.

Separately, Manpower Minister Hanif Dhakiri mentioned three challenges Indonesia will face in improving the human resources, one of which is quality.

“When talking about human resources, there are three issues. First is quality. As for quality, I believe Indonesia has it. You can find highly skilled workers in Indonesia. But the problem is in the second issue, which is the number,” said Hanif after a teleconference with the Presidential Chief of Staff, Moeldoko at Wisma Bina Graha in Jakarta, Tuesday (7/8).

According to Hanif, the number of quality workers in Indonesia is still at role model level. “Approximately 60% of 133 million workers in Indonesia are elementary and junior high school graduates,” he said.

The third issue, according to the Manpower Minister, is the uneven spread of quality workers. “In remote areas, such as Morowali, their number is definitely far smaller than in areas close to a city,” he emphasized.

Hanif explained Indonesia’s human resource quality should not lose to that of foreign workers. “We have physics experts, math experts, and welding experts. We always send participants to join ASEAN Skills Competition and World Skills Competition,” he closed.

The Minister mentioned in 2016, Indonesian delegations won 13 gold medals in ASEAN Skills Competition in Malaysia.