The Biggest Challenges in Indonesia Infrastructure Finance

Posted on Dec 23, 2016 by randy

It can be denied that there are many issues that need to be solved in Indonesia infrastructure finance. In fact, it is a long time struggle for the government to acquire the budget needed to fund the infrastructure development. PPP scheme is still the best and most effective financing infrastructure method up to this time to complement the government budget. However, even this method comes with some trouble as well. If Indonesia wants to ensure the success of its ambitious infrastructure development by 2020, these challenges really need to be tackled. 


Land Acquisition Issue

It is safe to say that land acquisition issue is the biggest challenge that the government needs to overcome, especially in the electricity infrastructure development. The local land owner refuses to sell their land for the project and it really obstructs the project to the point that many investors feel reluctant to participate in this project due to the uncertainty. The government needs to give explanation both to the landowners and to the investors. Most importantly, the investors need to be convinced that the project can still go on despite the difficult circumstances and they should keep participating. 


Weak Bond Markets

Bond market is one of the best way to get the fund Indonesia needs for its infrastructure development, especially because Indonesia really welcomes foreign investment. However, Indonesia has not incorporated its bond and equity markets well. Indonesia’s bond market value is less than 20% of the GDP. This is a very small amount compared to its neighboring country Singapore which has around 80% of bond market value of the GDP. 


Developing Many Infrastructure at the Same Time

The last challenge in managing Indonesia infrastructure finance is the fact that this country needs to develop various priority projects at the same time. This is not an easy thing to tackle but Indonesia needs to continue this ambitious plan because it is necessary to improve its economy in the future.

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