PRESS RELEASE
Contact :
The World Bank
 Andre Bald (021) 5299-3057,
0856-7830564
abald@worldbank.org
 Mohamad Al-Arief (021) 5299-3084
malarief@worldbank.org
Actions to Avert an Infrastructure Crisis in Indonesia
Policy Integrity is Key to Gain Momentum to Overcome Indonesia’s Infrastructure
Challenges
Jakarta, December 2, 2003 – A one-day conference co-hosted by the World Bank and the
Government of Indonesia’s Committee on Policy for the Acceleration of Infrastructure
Development (KKPPI) was kicked off today in Jakarta to discuss the needed actions to avert a
crisis in Indonesia’s infrastructure sector. The meeting will also review the preliminary findings
from the World Bank’s draft infrastructure report entitled “Averting an Infrastructure Crisis: A
Framework for Policy and Action.” The conference brought together key representatives of the
Government of Indonesia, private sector, civil society, and the donor community.
The draft infrastructure report, which will be further discussed in the conference, highlighted
several key messages:
Indonesia lags behind the region in almost all infrastructure sectors. Only about 34 percent
of the urban population (or 14 percent of the total population) are served directly by water
utilities. In the sanitation sector, the situation is even more problematic. Only 1.3 percent of the
total population of Indonesia has access to network sewerage, while 73 percent of urban
households are estimated to have on-site sanitation, mostly in the form of septic tanks that are not
functioning effectively. Outside of Java, many outer island regions are now suffering regular
power outages, and only about half the population is connected to PLN’s (the state electricity
company) grid. Roads in and around major cities are heavily congested throughout the day. And
while telephone connection (teledensity) has increased very rapidly in the last few years, it
remains very low at 9.1 subscribers (including both fixed and cellular services) per 100 people.
Infrastructure is critical for Indonesia’s growth and poverty reduction. Poor infrastructure
performance is strongly affecting Indonesia’s growth prospects. Small firms – whose productivity
is key to Indonesia’s recovery – are severely hit by infrastructure failings as they are generally
less able to self provide than larger firms. Cities, that produce about 75 percent of GDP, are also
acutely affected, especially by poor water and sanitation services, and by heavily congested
transport systems. Numerous empirical studies have demonstrated that there is close correlation
between growth on the one hand and the quality and quantity of infrastructure on the other hand.
The correlation appears to exist in Indonesia, between growth and infrastructure investments,
with a downward trend for both over the last decade.
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The report also mentioned some of the recent accomplishments and main challenges forward:
In recent years, some real progress has however been achieved. A modern electricity law was
adopted in 2002, implementing regulations have been prepared, electricity tariffs have been
increased substantially, and contentious issues with the Independent Power Producers have been
settled. The water sector has seen forward movement in the implementation of work out
programs aimed at establishing some PDAMs (local water companies) on a more sustainable
financial footing. In telecommunications, a new law adopted in 1999 paved the way for the
progressive introduction of competition in all market segments and dramatic growth in the
number mobile subscribers since 1997 has been accompanied by solid increases in numbers of
fixed lines in service, public payphones, teleshops (wartel) and internet shops (warnet).
Infrastructure should now be made a national priority. While the 1997 Crisis has contributed
to infrastructure’s stagnant state, it is not the primary reason. Failure to optimize the use of
public resources, poor targeting of public subsidies, inadequate public management, insufficient
mobilization of domestic finance, and a non-conducive institutional and regulatory framework for
private participation are more culpable for Indonesia’s infrastructure’s doldrums. Indonesia has
demonstrated its ability to implement sound macroeconomic management; it must now
demonstrate the same resolve in tackling its infrastructure needs.
Credibility is key for the government efforts to build momentum in the post-economic crisis
and decentralized setting. Currently, there is a lack of credibility in the long term directions:
 Users of services are skeptical that increased tariffs will improve service,
 Private investors are not ready to invest because of inconstant policy and regulatory
environment, and
 Government is doubting the impacts of infrastructure investment, resulting in a drought in
public budget allocation for infrastructure.
Three main factors are at play:
 Public planning and management of infrastructure is inadequate: issues related to
unclear allocation of responsibilities and lack of coordination mechanisms among public
authorities have been exacerbated by the recent push toward decentralization, and public
management of infrastructure provision remains inefficient particularly in the WSS and
road sectors.
 The institutional and regulatory framework is simply not conducive to private
participation in infrastructure: other countries are perceived as less risky and noninfrastructure opportunities within Indonesia tend to offer more predictable and secure
returns.
 Corruption, which affects infrastructure particularly severely, remains pervasive.
Addressing the “credibility gap” in infrastructure provision – the same way the government
successfully addressed credibility with its macroeconomic policy – is critical for both the public
and private sectors.
Decentralization presents enormous opportunities for improved infrastructure provision,
but, unmanaged, these opportunities remain liabilities. In the field of infrastructure, the
allocation of responsibilities between different levels of government needs to be clarified: the
assignments specified in the different regulations that implement the decentralization program are
not always fully consistent. For networked infrastructure there are compelling arguments for
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empowering the provinces to play a much stronger coordinating role vis-à-vis kabupaten and
municipalities. Finally, given additional responsibilities, investment in capacity building for
infrastructure management at the local level is essential.
In his keynote speech, the Coordinating Minister for Economic Affairs, H.E. Dorodjatun
Kuntjoro-Jakti, highlighted the importance of infrastructure in expediting economic
development. “Infrastructure is the right of every people as it plays an important role in creating
social welfare by laying the very foundation for poverty alleviation efforts,” said Minister
Dorodjatun. “The provision of basic infrastructure becomes the government’s obligation and
should reach even the least developed areas within the country, in order to promote equitable
human, social and economic development throughout the country... in line with the need to
promote sustainable development and to achieve the poverty reduction targets as committed in
the Johannesburg World Summit 2002 and the Millennium Development Goals,” he added.
Specifically on public service delivery, in the various meetings with regional governments,
Minister Dorodjatun commented, "If the quantity and quality of the public service in the regions
during the decentralization era is worse off than when everything was still decided by Jakarta,
then it is not only regional officials and parliamentarians who would be likely to loose seat in the
next election, but also parties will pay the consequences."
Andrew Steer, the World Bank Country Director for Indonesia, reiterated that the World
Bank is Indonesia’s long-term partner in infrastructure development. “The stakes are now high.
Indonesia’s failing infrastructure is already undermining growth prospects, and making it very
hard to achieve its national goals for poverty reduction. With Indonesia’s macroeconomy now in
sound shape, now is the time to move more boldly in addressing longer term infrastructure
needs.”
For more information about KKPPI, visit: www.kkppi.go.id
And for information about The World Bank in Indonesia, visit: www.worldbank.or.id