Indonesia aims to earn its place as one of the world’s developed countries by 2025

 

In order to understand the origin of the MP3EI, it is important to look at things from a broader perspective. During the global financial crisis in 2008, many countries were facing economic decline, while Indonesia still enjoyed positive growth of about 6%. At that time, developed countries were going through an economic downturn, and ASEAN and other Asian countries became the new centers of growth and part of the solution for the global economy.

 

President SBY felt that Indonesia should be better prepared for the recovery of the global economy in the future and that we had the potential to excel more in the long term. It was clear that not much could be done in only 5-6 years, as we have to improve many areas for Indonesia to become a developed country. The idea was to find optimal solutions for different economic areas in order to make our economy more resilient and competitive. So the President ordered the Coordinating Ministry of Economic Affairs, members of the National Development Planning Agency, as well as prominent individuals in the private sector and academics, to develop a long-term strategy for the economic transformation of our country. The whole process was aimed to create a strong political synergy between all the stakeholders. This is how the MP3EI was created to accelerate and expand Indonesia’s economic growth.

 

The MP3EI has 3 main pillars. The first one is the cultivation of economic growth within six economic corridors across Indonesia. The second pillar is connectivity and it relates to the problem of infrastructure, which is not well developed in areas outside Java. The third pillar is the need to focus on the development of our human resources and technology.

 

The Indonesian economy is currently dominated by economic activities focused in Java. But we must be mindful of our archipelago-wide perspective. The MP3EI is designed to shift the focus towards the regional areas and create new economic centers based on their potential and unique competitive advantages. This is how we identified the 6 economic corridors to expand and modernize economic centers outside of Java. In terms of industry, we need to turn away from extraction-orientated operations and develop value-added production.
 

One of the reasons why investments are predominantly centralized in Java is because infrastructure is not properly developed in other areas. We cannot develop all regional areas at once, so we have to choose very smartly strategically located areas with the major potential to become growth centers in the future. In these areas, we must develop basic infrastructure for transport, energy, water, etc. Furthermore, we must cut the red tape and simplify the bureaucratic procedures if we want to attract investment outside Java.
 

During the formulation of the master plan, we consulted all the major stakeholders related to infrastructure: state owned enterprises (SOEs), private companies, government agencies, such as public works, transportation, mining, energy and telecommunications on what investment projects they were committed to start during the 2011-2014 period. 
 

The SOEs and private companies came up with many projects and the total value of the estimated investment for this period was around US $450 billion. We identified approximately 1,500 investment commitments out of which about 1,000 were infrastructure projects, while the remaining 500 belong to the real economic sector. Of course, the readiness of all of those investment plans was not at the same level, but this was the number that we came up with at that time. As a result, the government’s investment was supposed to be only 8-10%.

 

The MP3EI is very complex and requires considerable cross-sector and cross-entity synergy and collaboration. Even though we initially identified 1,500 projects, we eventually realized the need to set more specific priorities in order to be more efficient and have concrete accomplishments. We decided to identify key infrastructure projects that will have a significant impact on Indonesia’s economy and focus on them.
 

At that time, different entities had different priority projects lists. For example, the National Development Planning Agency (Bappenas), the Ministry of Public Works, the Ministry of Transportation, the Ministry of Energy & Mineral Resources all had their own lists of priority projects. We wanted to avoid conflict of interests and potential confusion among investors coming to Indonesia. 
 

So as Deputy Minister for Infrastructure & Regional Development Coordination at the Coordinating Ministry of Economic Affairs, I took on the task to collect all these lists, set the common criteria, evaluate and discuss in-depth all the projects with the stakeholders, and put together one final list of priority projects that are of national importance and require special attention. The selection of priority projects is based on the immediate needs of economic development centers and investment-readiness of downstream industries. That is how last year we first came up with a list of 40 projects, which was then extended to the final list of 56 prioritized strategic infrastructure projects.
 

According to our previous experience, it was clear that we would not be able to accomplish all the 56 projects this year. So we decided to select 10 and focus on them. We had to evaluate thoroughly each proposal to make sure it had a clear business case and pre-feasibility study. Once evaluations are completed, we submit them to the ministerial committee called KPPIP, which is a revitalized version of the previous ministerial committee for infrastructure provisions (KKPPI). The KPPIP is then in charge of facilitating the processing of the priority projects.
 

KPPIP then decides which projects will be funded by state budget (as the investment rate is not high enough so it is difficult to find investors), which ones will be assigned to SOEs (as they need to be completed very quickly and some SOEs are capable of doing that), and which ones have the highest financial rate of return and are attractive for PPPs.
 

Bappenas will then follow up with the annual planning for the state budget funded projects. For the projects assigned to the SOEs, we will provide a regulatory umbrella through a Presidential decree. As for the PPP projects, the Ministry of Finance will be assigned to conduct fully-fledged feasibility studies, as well as a demand study if necessary. The preparation for the tendering process has to be in accordance to the best international practices. They will also be in charge of the market sounding and socialization with the media, and eventually the transaction advisory. 
 

We are waiting for a new Presidential Decree on PPPs as we really need to improve the project preparation phase. We are aware that things have not been well managed in the past. The projects that we offered to the investors were not attractive and consequently, the results were poor, so we need to revitalize the project preparation.
 

The KP3EI is in charge of monitoring and facilitating the implementation of the Masterplan for Acceleration and Expansion of Indonesia’s Economy 2011-2025 (MP3EI). This committee is chaired directly by the President of the Republic of Indonesia, Susilo Bambang Yodhoyono. The Vice Chairman of KP3EI is the Head of Bappenas, while the Coordinating Ministry of Economic Affairs holds the daily chairmanship of KP3EI.
 

There are nine working groups in the KP3EI. The first six working groups correspond to the six economic corridors of the MP3EI. The chairman of each working group for each corridor is the relevant minister, while the vice-chairmen are from the regional government and private sector.

 

1. Sumatra (Minister of Forestry)
 

2. Java (Minister of Public Works)
 

3. Kalimantan (Minister of Agriculture)
 

4. Sulawesi (Minister of Fisheries)
 

5. Bali-Nusa Tenggara (Minister of Tourism & Creative Economies)
 

6. Papua-Maluku Islands (Minister of Transportation). 

 

The remaining three working groups are dedicated to: 

 

1. Regulations (chaired by the Executive Secretary of the Coordinating Ministry for Economic Affairs)
 

2. Connectivity (chaired by the Vice Minister from Bappenas)
 

3. Human resources & Technology (chaired by the Vice Minister of Education)

 

This kind of structure was aimed to involve everyone to work together, the central government, the regional government, and the private sector. But this kind of initiative should be supported by a strong group of consultants responsible for providing all the necessary data for the project. This kind of institutional setting requires continues surveys and data collection, as well as constant follow up and monitoring in order to facilitate the activities of the different stakeholders, primarily investors.

 No country can attain its development vision and goals without continuity of development programs”. It is easy to say, but sometimes difficult to implement. However, I want to believe that our people, as well as our future government, will understand and keep this dictum in mind.
 

The MP3EI is a universal platform with common vision and goals that are shared in the country’s Long and Medium Terms Development Plan. Much work has been done with the MP3EI and many opportunities will be lost if the next administration does not build up on our achievements. When it comes to infrastructure, there must be continuity because we are dealing with long-term issues. Whatever program the new administration may have, I am sure that most of the infrastructure projects will be the same.

The MP3EI projects are real and concrete, not just writing on paper.
 

Any future Indonesian government should use the existing masterplan as a base and periodically improve it according to their knowledge and capability limits. However, they should not jeopardize its true beneficial values and principles. Therefore, our priority is to continue educating everybody about the importance and benefits of the MP3EI.
 

I want to expedite the prioritized projects that are now waiting to be cleared by the new Presidential Decree. Before the change of government, I would like to see a decision as to which projects could be offered to the private sector. It would be great to move to the tendering process because then nothing could stop them and we could start seeing firm commitment to projects.
 

Indonesia is now in urgent need to prove to the global community that it has the capability to implement this kind of infrastructure projects. We can do this by using the services of reputable, international consultancy agencies, such as McKinsey. Once we know a project has high potential for PPP, they could make the project preparations, which would give a boost to investor confidence.  
 

There are many aspects that should be improved before Indonesia joins AEC, especially in terms of our human resources. But on this occasion I would like to focus on infrastructure in particular. Being an archipelago country, it is very important for Indonesia to strengthen its domestic connectivity ahead of AEC 2015. The MP3EI is aimed at boosting the national connectivity through the creation of economic corridors. Our objective is to encourage the flow of goods and services within and between the corridors in an efficient and effective manner in order to enhance our competitiveness regionally and globally. Furthermore, we want to reduce the logistics costs for the delivery of goods and services. We are already making progress in both areas and the domestic trade routes are growing rapidly over the past years.
 

With the establishment of AEC in 2015, we need to accelerate the completion of our connectivity projects in order to be able to compete with the other ASEAN members. For example, the interconnection between primary ports and airports should be improved by 2015, especially in the Eastern part of Indonesia. The expansion of the main seaport in Java, Tanjung Priok, needs to be completed soon. We need to focus more on the Straits of Malacca as the main route for global container ships. In North Sulawesi, Bitung International Port should be built as a priority project. 
 

I think the American government has realized that countries like China, Japan and South Korea are much more engaged in infrastructure development in Indonesia than they are. So I believe the US is now more interested in taking part in infrastructure developments in Indonesia, as it is a sector that will offer huge opportunities in the future. 
 

In 2012, the governments of the US and Indonesia signed a memorandum of understanding (MoU) to strengthen their cooperation in developing infrastructure which is crucial for the economic development of Indonesia. Through this MoU, US companies are expected to provide consultants on infrastructure development, information technology, and oil & gas projects.
 

The MP3EI offers a wide spectrum of economic activities, which could bring significant commercial opportunities for US companies and benefit Indonesia. The US has the technology edge in many areas such as energy, road development, airport development, ICT, etc. Furthermore, many of our youths are studying in American universities, which can benefit US companies when it comes to penetrating our market. 
 

US business should be able to widen their presence in Indonesia and not only focus on mining and other extractive industries. There is more room for renewable energy related activities, machineries, substations, transmissions, transformers and distribution equipment, aircraft and parts, ICT, food industries, and last but not least, higher education and training. 
 

From our side, we must understand the importance of investment for our economy. Furthermore, we must improve the quality, not only the quantity of investment. We must ensure that we attract the right investment in line with our development goals, i.e. related to food security, raw material processing, ITC, etc. It will be the duty of the new government to promote this kind of investment, but more importantly they need to facilitate investments that will turn our nation into a production base, not just increase our consumption. Being the largest economy in Southeast Asia, we must drive Indonesia to become the economic backbone of ASEAN, just as Germany is to the European Union.