Dion Bisara – Indonesia's problems developing infrastructure and reforming the bureaucracy may cost 1 percent to 3 percent of the country's annual GDP growth over the next decades, impeding its aim to be among the largest economies in 2030, Standard Chartered Bank said in a report last week.

The UK-based bank projected last year that Indonesia would become the sixth largest economy in the world in the next two decades, in nominal GDP terms. US-based consulting firm McKinsey & Co. affirmed the view last month, predicting Indonesia would become the world's seventh-largest economy by 2030, due to its huge young population and domestic consumption. Today, the country is the 16th largest economy, above Turkey, Saudi Arabia, Argentina and South Africa.

Standard Chartered said the projection was made by assuming real GDP will grow by around 7 percent annually, on average, from 2014 to 2030. That is faster than the 5.2 percent average over the last 10 years. Indonesia grew by 6.3 percent in the first half of this year, slowing from a 6.4 percent pace last year.

However, the report said, that growth target will be difficult to achieve if the problems of infrastructure bottlenecks, such as land clearance, lack of skilled project managers, legal uncertainties, and bureaucratic inefficiencies and corruption are not resolved quickly.

And, to make things worse, the report, highlighted the fact that government is bound to spend more funds paying officials than for making roads, bridges, ports, dams, irrigation system and airports.

"High payroll costs impede higher government capital spending while the bureaucracy is not as effective as it might be," said the report, which was made available to the Jakarta Globe on Friday.

The central government earmarked Rp 241 trillion for payroll of its 913,000 civil servants in next year's budget, up 14 percent from Rp 212 trillion this year. The budget does not include salaries for the other 3.8 million civil servants in local governments. In comparison, capital expenses were set at Rp 194 trillion, up 15 percent from this year.

Standard Chartered estimated that the government needs to increase spending by 20 percent per year for transport infrastructure and by the same rate for the state electricity sector in order to grow by 6.9 percent to 7.6 percent annually, assuming that the private sector provides 50 percent of the total investment needed.