New Body To Fund Building Projects

The Jakarta Globe, Dion Bisara & Muhamad Al Azhari, February 11, 2009  

The government, in concert with the World Bank and Asian Development Bank, plans to inject up to Rp 4 trillion ($340 million) into a special body that will provide loans to investors interested in developing long-term infrastructure projects, a senior government official said on Tuesday. 

The body, to be called simply “Infrastructure Funds,” is meant to help finance projects like toll roads, railways, power plants, utilities, seaports and airports. 

The government has decided to make the funds available because liquidity problems in the banking sector have limited private-sector lending. 

Wahyu Utomo, the coordinating minister for the economy’s deputy for infrastructure and underdeveloped areas, said the body would be set up in February and should be operational some time in the first half of this year. 

“Looking at the current conditions, we expect the project to move forward and provide funding should developers have difficulty securing financing while banks have only short-term funds,” Wahyu told reporters at a seminar in Jakarta. 

The government expects to make a contribution of Rp 1 trillion to the body, with the rest coming from the two multilateral agencies. 

“Indonesian banks’ balance sheets mostly consist of short-term deposits,” said P.S. Srivinas, lead financial economist at the World Bank in Jakarta. 

“Therefore, they cannot finance long-term loans like those for an infrastructure project.” 

The government hopes the plan will give Indonesia’s ailing infrastructure a lift, since the current global financial crisis may reduce domestic banks’ ability to finance long-term projects. 

Analysts say the banks’ limited lending capacity is due to the difficulty of obtaining long-term, third-party funds – including savings and time deposits — in the current environment. 

According to a recent report from the World Bank, as of November 2008, 87 percent of Indonesia’s Rp 1.707 trillion in third-party funds were held in time deposits with maturities of less than one month. 

Dedy S. Priatna, the state minister for national development planning’s deputy for infrastructure, said Indonesia would need Rp 1.429 trillion to finance the infrastructure projects the government has planned for 2010-14. However, he indicated that on its own the government likely could only afford 30 percent of that total. The rest, it is hoped, could be secured through public-private partnerships. 

Many in the private sector, however, are not interested in participating in the government projects because of their low-quality feasibility studies, problems with securing land and few guarantees of returns. 

In response, the state ministry’s Dedy said: “We at the agency are now working to improve feasibility studies for the planned infrastructure projects.”