Indonesia unveils $70bn road-building plans

Indonesia’s re-elected president, Joko Widodo, is reportedly planning a US$70-billion investment on toll highways spanning 5,400km, almost tripling the current network.

Danang Parikesit, head of the Indonesian toll-road regulator, said investment would be sought from bank loans and private funding.

“Infrastructure will grow rapidly and faster than before,” he told the media.

It is part of plans for more than US$400 billion of building projects to modernise Indonesian infrastructure under Jokowi’s second term, which begins in October.

The government has said it wants to boost connectivity between its thousands of islands to improve the flow of everyday items and enable prices to remain consistent.

The quickest way to generate economic growth in Asean’s largest economy was through improved connectivity, Planning Minister Bambang Brodjonegoro recently said.

During his first presidential campaign in 2014, Jokowi promised to upgrade Indonesia’s woeful infrastructure. Since then, Indonesia’s ranking on the World Bank’s Logistics Performance Indicator, which measures infrastructure, rose from 53 in 2014 to 46 last year, ahead of Mexico, Brazil and Turkey, which is hard to believe for anyone who has visited both countries.

More than half of the proposed new toll roads would straddle Sumatra, involving large bridges and long tunnels, Parikesit said. Any plans for further development on one of the world’s largest islands would raise alarm among environmental activists about the fate of endangered species.

In 2014, Malaysia’s Melaka state government, south of Kuala Lumpur, had considered reviving a 2006 idea for a bridge linking it to Dumai on Sumatra, which would be the longest in the world.

The idea was originally discarded following the 1997 Asian financial crisis.

The Indonesian road-building organisation was also studying the possibility of a bridge between Singapore and Indonesia’s Bintan, Parikesit said.

“Such ambitious projects could boost businesses for construction companies and related stocks, particularly the state-owned ones,” said Jeffrosenberg Tan, head of investment at Sinarmas Sekuritas. “However, that might put more pressure on the liquidity of the banking sector.”

In a bid to boost investment and accelerate economic growth, Indonesia’s finance minister, Sri Mulyani Indrawati raised the price threshold at which luxury sales tax is applied to homes to support the property sector and encourage home buying.

The income tax rate for infrastructure-related securities would be cut to 5 per cent from 15 per cent, Indrawati said, although no timeline was given.

Rugged Sumatra could face an infrastructural overhaul. Picture credit: Wikimedia