Esther Samboh, Jakarta – The World Bank says Indonesia's ambitious master plan to become one of the largest economies in the world within 14 years is possible if regulatory bottlenecks are addressed to improve investor confidence.
World Bank chief economist Justin Yifu Lin said in Jakarta on Wednesday that a regulatory framework was key to ensuring private investment in hundreds of billions of dollars of projects from 2011 to 2025.
"You need to improve the regulatory framework to carry out these investments effectively. Otherwise, for the private sector to make investments here is very risky," he said at a discussion at the Investment Coordinating Board's (BKPM) office for the release of the World Bank's latest Indonesia Economic Quarterly report, titled "Current Challenges, Future Potential".
President Susilo Bambang Yudhoyono launched an ambitious Rp 4,000 trillion (US$464 billion) economic master plan for 2011 to 2025 last month, aimed at boosting the country's GDP to approximately $4.5 trillion by 2025, making Indonesia among the world's 10 largest economies.
Investment will be necessary to fulfill the development programs to be carried out in six economic corridors throughout the archipelago: energy-related development in Sumatra; industry and services in Java; mining in Kalimantan; agriculture, forestry and fisheries in Sulawesi and North Maluku; tourism and food in Bali and Nusa Tenggara and natural and human resources in Papua and Maluku.
In the master plan, more than 50 percent of the estimated investment would come from the private sector. State-owned enterprises were expected to contribute 18 percent and central and provincial governments should contribute 10 percent in the form of basic infrastructure.
The remaining 21 percent will be provided by a mixture of foreign investment and public-private partnerships (PPP).
"Political commitment will be required to address specific regulatory bottlenecks that have been blocking investment for several years, such as land acquisition, pricing mechanisms such as in energy, competing regulatory jurisdictions, the slow disbursement of public funds and cost recovery issues, among other things," the World Bank's report reads.
BKPM chairman Gita Wirjawan and Trade Minister Mari Elka Pangestu also attended the discussion and agreed that the government had been working to develop regulatory frameworks, mainly for land acquisition and tax incentives, both of which have been in the pipeline for at least a year.
"It all depends on how we do over the next one, two, three years. Over the next three years, we need to be able to execute 20 PPPs to be realistic about it," Gita said, adding that two of the PPPs would be executed this year.