Latif Adam – Well-developed infrastructure has been a key factor in China's success in achieving high and sustained economic growth.

Beijing's decision to allocate massive spending on infrastructure since the early 1980s has contributed significantly to the country's improved competitiveness. The resulting development helped various sectors to reduce transportation costs, strengthen distribution networks and improve efficiency in the production process. The result: Today a number of Chinese products can compete in both international and local markets.

By contrast, the development of infrastructure in Indonesia has sputtered, hurting the country's competitiveness. Several studies have concluded that poor infrastructure has been a major constraint achieving high and sustained economic growth in Indonesia.

For example, a 2005 World Bank study reported 900 businesses as saying they lost 4 percent of their sales due to bad transportation and another 6 percent due to inadequate energy infrastructure.

Several factors are responsible for the low quality of Indonesia's infrastructure. First, the government's commitment to develop and maintain infrastructure is relatively low. This is indicated by the decrease in the country's infrastructure spending.

Indeed, the ratio of infrastructure spending to GDP has dropped steadily from 3.7 percent in 1999 to 3.6 percent in 2003, 2.9 percent in 2008 and only 1.5 percent in 2009.

Second, infrastructure spending is poorly allocated. The spending is, in large part, allocated for consulting services and planning, monitoring and supervising costs. This, in turn, reduces direct spending on physical infrastructure.

Third, the realization of infrastructure spending is very slow and often delayed. For example, in 2009 infrastructure spending managed by the Ministry of Public Works only accounted for 49 percent of the total budget of Rp 35 trillion ($3.8 billion) through September.

The ministry thus had a mere three months to spend the balance (Rp 17.9 trillion). When the process is this rushed, infrastructure project are unlikely to turn out well.

Fourth, the government has rules and regulations to maintain the quality of infrastructure, but enforcement is weak. For example, the government prohibits vehicles over a certain weight from operating on some roads.

But in many cases, the government has proved reluctant to take legal action against vehicles in violation of this rule, leading to continued violations. The end result is that roads' integrity cannot be maintained.

From an economic point of view, most infrastructure can be classified as public goods that require huge expenses to develop with a low rate of return on investment and high risks.

Hence, the development and provision of infrastructure should ideally be the responsibility of the government. However, low fiscal capacity has hampered the government's ability to play its role.

Moreover, a lack of commitment on the part of the government to develop infrastructure gradually over the last few years has resulted in accumulating problems and a growing price tag to fix them.

If we assume an appropriate level of infrastructure budgeting is 5 percent of GDP per year, in 2014 it will require Rp 1,429 trillion.

The government will not be able to provide this huge amount of funding, which would put pressure on the government's fiscal sustainability because of the high cost of subsidies and debt repayment.

Thus, the government should mobilize the private sector to participate in developing infrastructure.

To be fair, the government has tried to encourage the private sector to engage in infrastructure development. For example, through the Indonesia Infrastructure Summit in 2005 and 2006, the government offered more than 100 projects to the private sector. Unfortunately, however, the response was unimpressive.

Recently, the government tried to attract private sector investment by establishing PT Sarana Multi Infrasruktur and PT Penjaminan Infratruktur Indonesia.

The former is responsible for providing loans to the private sector involved in infrastructure projects, while the latter provides a financial guarantee if the projects require more funding than initially projected in order to complete.

While the government deserves praise for establishing these two organizations, it needs go beyond funding issues if it wishes to attract private-sector investment to infrastructure projects.

First, most infrastructure projects do not have regulations in place. This discourages the private sector, which sees the projects as uncertain and risky. Second, the government should harmonize all the different rules and regulations that only create uncertainty.

For example, to address the issue of speculation surrounding land acquisitions, the Ministry of Finance issued a decree in 2006 that put in place a price-capping mechanism. However, this decree conflicts with a 2005 presidential decree that says owners of land taken by the government for public purposes are due fair compensation based on the actual market value of the land.

Third, infrastructure projects are high risk in nature: They are long-term investments with a low rate of return on investment and high externality. Thus, the government should provide both fiscal and non-fiscal incentives to offset risks.

Finally, the government should establish a task force to monitor the allocation of infrastructure spending. The task force would be responsible for ensuring the spending does not, in large part, go to unnecessary posts, like planning, monitoring and supervising.

The task force would also be responsible for reducing mark-ups and bribery when a project is tendered to the private sector.

[Latif Adam is a researcher at the Economic Research Center of the Indonesian Institute of Sciences (LIPI).]