Jakarta – Indonesia has hundreds of infrastructure projects in the pipeline and China's similar ambitious initiative may offer a way out for lack of funding in the Southeast Asian country as long as it can come up with well-planned projects and a simple bureaucracy, a top executive at Bank HSBC Indonesia said.
"Indonesia may be the only country in the world with 17,000 islands but lacks the infrastructure [to connect those islands]," Ali Setiawan, Bank HSBC Indonesia managing director and global market head, said on Tuesday (13/06).
Ali talked to the Jakarta Globe in a special interview about Indonesia's need for infrastructure and how China's One Belt One Road Initiative can help.
The Chinese initiative, also known as OBOR or sometimes BRI – for Belt and Road Initiative, is an ambitious development campaign launched by Chinese President Xi Jinping in September 2013 in which the country seeks to build infrastructure connecting it to 65 countries in Asia, Africa and Europe.
A report by law firm Baker & McKenzie said the initiative will pump around $87 billion into infrastructure projects in Southeast Asia. Ali said the region may actually see closer to $100 billion next year. "How much of that funding can Indonesia absorb? It all depends on the government," Ali said.
Indonesia had started a five-year plan in 2015 to build hundreds of infrastructure projects including 2,650 kilometers of new roads, 1,000 kilometers of toll roads, 3,258 kilometers of railroads, 15 new airports and 24 new ports.
But the state budget can only cover Rp 1,500 trillion ($113 billion) out of the estimated Rp 4,900 trillion needed for 225 national projects proposed by President Joko "Jokowi" Widodo until 2019.
"If [the government] prep those projects properly and negotiations run well, we'll be able to get much of the [Chinese] funding. The problem is, bureaucracy can take so much time in Indonesia that the money can easily go to Malaysia or Thailand instead," Ali said.
Ali shared an experience he had being involved in a project before President Jokowi's time. While he refused to provide details on names, locations or exact date for the project, he said just the negotiation process took more than two years.
Sometimes, even if the central government gives the go-ahead for a project, he said, local governments may object and further complicate the deal. "We must act fast," he said.
One-door policy
Ali lauded the government's one-door investment policy – an initiative to process basic licenses under one roof and simplify starting up an investment in the country – managed by the Investment Coordinating Board (BKPM).
The BKPM even launched a special help desk for Chinese investors seeking to make investment in Indonesia to attract much-needed foreign direct investment into the country.
Lack of funding
Ali estimated Indonesia may need up to $600 billion in the next 10 years to pay for more infrastructure projects – far beyond Indonesia's budgetary ability.
"State-owned banks are being 'forced' to support infrastructure developments by other state-owned construction companies but if the banks can't come up with the money, will our capital market be strong enough to step in?"
A recent report by the International Monetary Fund (IMF) said Indonesia's financial system is "relatively shallow" and capital markets are "relatively thin." External financing is important for long-term financing due to a small domestic investor base.
The government has tried to introduce new financial instruments such as long-term infrastructure bonds. Still, the report noted that fostering financial deepening without compromising prudential standards is a "key challenge" for Indonesia.
"Most of the funding from state-owned lenders goes to other state-owned companies so that can mean hardship for private companies," Ali said.
HSBC pledges support
Ali said this is where HSBC steps in, connecting Indonesian companies with foreign lenders or other companies. "We have strong presence in places targeted by the Belt and Road Initiative, so we want to try helping the government to streamline the process," he said.
According to Ali, Bank HSBC Indonesia offers services as an advisor or to provide working capital for companies involved in infrastructure projects.
The lender had just merged its foreign bank branch in Indonesia with local subsidiary Bank HSBC Indonesia – a rebrand of local lender Bank Ekonomi Raharja – on April 17, and now claims to provide local customers with more banking services through HSBC's network across 73 countries.