Urip Hudiono, Jakarta – The government is setting aside at least Rp 3 trillion (some US$300 million) in funds from this year's state budget to help kick off financing for infrastructure development around the country, in partnership with private investors.

The funds will be used for the direct financing of several planned infrastructure projects, and as a guarantee for others that will be financed by the private sector, the Finance Ministry's Director General of the Treasury, Mulia P. Nasution, told reporters Friday.

"Consider it an initial pool of working capital for infrastructure development," he said. "It's the government pitching in to the projects' financing, even if it's just a small percentage of the necessary funds. With this, we hope private investors will be assured of our commitment (to the projects) and be attracted to participate more."

Mulia explained that the government will set up a revolving fund for infrastructure development with the Rp 3 trillion, and expects to be able to support the financing of at least three or four major infrastructure projects this year.

The use of revolving funds is a common scheme in financing major infrastructure projects. It works by pooling the minimum required capital for a project's initial construction. As the project is then offered to other investors, and revenues from user charges are derived in the process, the fund is then replenished to pay for other projects.

Part of the Rp 3 trillion will also be allocated as insurance for several projects carried out by private investors, Mulia further explained.

Mulia did not elaborate on the projects, however, or how much will be allocated for the revolving fund and the guarantee fund, respectively. Since the money is to be taken from the state budget, the move will first have to be discussed with the House of Representatives' finance commission during the budget's usual half-year assessment and revision schedule.

According to a government estimate, Indonesia needs at least $145 billion in the five years ending in 2009 to develop its infrastructure, the lack of which has hampered the country's economic growth. Because embezzling from infrastructure projects is common, many of the country's vital roads, ports and power plants have deteriorated from poor quality and maintenance, also affecting the economy.

The cash-strapped government may be able to provide only 20 percent of the necessary funds, pinning its hopes on private investments for the remaining financing. It held an Infrastructure Summit last year offering 91 projects worth $22.5 billion to investors.

Progress has been slow, however, with investors taking up fewer than half of the offered projects amid lingering doubts about Indonesia's investment climate. The recent high inflation and high interest rates have also been unfavorable for investments in the infrastructure sector.

This has prompted the government to issue a package of policies to accelerate infrastructure development and improve the investment climate. These include simpler land-acquisition procedures, as well as fiscal incentives and risk-sharing schemes for infrastructure projects.