KEBIJAKAN

 FISKAL  INDONESIA  
DAN  PEMBANGUNAN  
INFRASTRUKTUR  

FAUZIAH ZEN

PEREKONOMIAN INDONESIA

1 DESEMBER 2018
 •  Fiscal Policy
OUTLINE •  Economics of Infrastructure
•  Indonesian case of infrastructure finance
FISCAL POLICY: WHAT WE NEED
TO KNOW?
•  The role of public sector
•  Expenditure policy
•  Revenue mobilization policy
•  Inter-governmental Fiscal relation
•  Focus:
•  Infrastructure Finance
FISCAL POLICY

Revenues
Expenditures

Debt

Broad Fiscal Policy Objectives

(RPJP, RPJM, RKP)
THE ROLE OF PUBLIC SECTOR

•  Why does the government intervene the economy?

•  Market Efficiency and Market Failure, Distributional Concerns

•  Understanding Fiscal/Budget Architecture

•  Appropriate Design of Revenue and Expenditure
•  Assignments to government agencies and tiers
•  Managing debt
 EXPENDITURE AND REVENUE
POLICY
•  Expenditure:
•  Types of public expenditures
•  National vs subnational assignments
•  Production and Provision: Public Sector, PPP, Private

•  Revenue:
•  Economics of taxation
•  Tax vs User charges
•  Incentives Design
 INTER-GOVERNMENTAL FISCAL
RELATION
•  Central Planning Approach
•  Decentralization
•  Money follow function/program

Functions Level of Government

Macroeconomic-stabilization
Income redistribution Central
Provisions National public goods
of public goods
Local public goods Local
WHY DOES THE GOVERNMENT
INTERVENE THE ECONOMY?
Market Efficiency and Market Failure, Distributional Concerns
•  Poverty rate
•  Basic needs
•  Lack of infrastructure
•  Uneven distribution: TPF: population, knowledge, assets;
infrastructure, connectivity, natural resources
UNDERSTANDING FISCAL/
BUDGET ARCHITECTURE
•  Appropriate Design of Revenue and Expenditure
•  Assignments to government agencies and tiers
•  Managing debt
 5 BUILDING BLOCKS OF
FISCAL DECENTRALIZATION

Structure of Intergovernmental
Expenditure Revenue Subnational
Government Transfer (Central
Assignments Assignments Borrowing
Sector to Local Levels)

Tiers of Functions and Loans

Government Services • (short term debt)
• 2 or 3 Levels- Performed by
Central,Regional, Subnational Units Own Source
Local Revenues (Local General Transfers
• Education (Equalization)
• Health Taxes and Fees)
• Transportation
• Social Services
• Land Use Planning

Size of Debt Issuance

Subnational Units (Bonds)
• Administrative- • Long Term Debt for
Territorial Divisions Conditional or Infrastructure
• Boundaries of Shared Revenues Cathegorial
Subnational Units Grants
• Fiscal Capacity
• Population-5,000
plus
EXPENDITURE

•  Types of public expenditures

•  National vs subnational assignments
•  Production and Provision: Public Sector, PPP, Private
BUDGET

•  Budget  is  a  fiscal  policy  instrument  

•  It  may  be  used  to  implement  the  redistribuGve,  allocaGve,  
and  stabilizaGon  funcGons  of  government.  
•  Loan  as  policy  instrument.  
FISCAL SUSTAINABILITY

•  A  budget  is  “fiscally  unsustainable”  if  it  adds  to  the  risk  of  
an  explosive  growth  in  the  cost  of  servicing  government  
debt  so  that  an  increasing  proporGon  of  the  budget  (or  
taxaGon  revenues  expressed  as  percentage  of  GDP)  must  
be  devoted  to  interest  payments  in  future  years.  
•  Government  may  borrow  to  create  assets  that  increase  
economic  growth  and  thereby  increase  “taxable  capacity”.  
 •  Economics of taxation
REVENUE
•  Tax vs User charges
MOBILIZATION
•  Incentives Design
 APBN DAN
KEBIJAKAN
PEMBANGUNAN
INFRASTUKTUR
 ALTERNATIVE SOURCES OF
INFRASTRUCTURE FINANCING
Alternative Source of Infrastructure Financing
SOEs and PPP become alternative source of funding to supplement Government Budget

2015 – 2019 Infrastructure Plan Scenario 1 Scenario 2 Baseline

Infrastructure Financing Needs 2015 - 2019
(Full Scenario) (Partial Scenario) (Baseline)
New Roads – 2,650 km Roads 1,274 851 637
Highway – 1,000 km Rail System 278 222 140
Road Maintainance – 46,770 km Urban Transportation 155 115 75
Bus Corridors – 2 Sea Transportation 563 424 282
New Sea Ports – 24 Ferry and Other Waster Transporation 91 80 60
Sea Port Development – 59 Air Transportation 182 165 100
Pioneer Cargo Ships Electricity 1,080 762 714
Other Energy dan Gas 535 420 268
New Airports – 15 Waer Resources 1,091 845 645
Airport Infrastructure Development
Water and Sanitation 666 450 330
Airplanes – 20
Public Housing 384 247 180
Rail lines – 2,159 km Information and Communication Technology 242 200 130
Intra City Rail Lines – 1,099 km Total 6,541 4,781 3,561

SOEs and PPP Become Alternative Source of Funding as Government Budget Could Only Support ~20% of Our Infrastructure Needs

 Central & Regional Budget (Special Allocation Fund & Village Fund)  Government to inject capital to SOEs – with leveraging process a multiplier

State Owned
Enterprises
effect, more infrastructure projects can be developed
 Mainly to support basic infrastructure projects:
Budget

 Key focus areas:

► Food Security: Irrigation, dams etc.
► For commercial and/or complex projects
► Maritime: Seaports, shipyards etc.
 Medium term infrastructure developments focus: electricity and power
► Connectivity: Village roads, public transportation etc. plants, toll road

 Government support for PPP :  Projects Ready for Auction under PPP Scheme:
And Private Sector
Public Private

► Land Fund: Modification and simplification of land acquisition process ► Toll roads projects such as Balikpapan-Samarinda, Manado-Bitung
Partnership

► Project Development Facility (PDF) through PT Sarana Multi Infrastructure
► Indonesia Infrastructure Guarantee Fund (IIGF)
► Viability Gap Fund (VGF)
► Infrastructure Fund & Availability Payment (AP)
► Railway projects such as Halim-Soetta Airport Express Railway
► Water supply such as West Semarang water supply project
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Source: MOF Indonesia

KEBIJAKAN INFRASTRUKTUR
 •  Why we build infrastructure?
•  Fulfill basic needs
•  Support for economic activities and
productivity
ECONOMICS OF •  Improve quality of life
INFRASTRUCTURE •  Become an industry itself

•  Is infrastructure always related with

higher growth?
 What is character of infrastructure?

ECONOMICS OF • Lumpy
• Many of them contain market failure – justified for government
INFRASTRUCTURE intervention
• Long-term investment
• Many are not commercially feasible, not cost-recovery

Typical market failures associated with infrastructure:

• Public goods – mixed goods

• Incomplete market – monopoly, economies of scale
• Can increase inequality
TYPES OF
INFRASTRUCTURE •  Economic infrastructure
•  Environmental infrastructure (river
management, watsan, solid waste
management, etc)
•  Social infrastructure (education, health,
amenities)
 •  Huge
HOW MUCH
DEMAND FOR •  Public funds are not enough
INFRASTRUCTURE?
•  Urban infrastructure shall be visionary
FINANCING MODALITY

•  Finance: Capital Investment

•  Funding: Operation and Maintenance
 FINANCING INFRASTRUCTURE

Traditional Procurement PPP Scheme

Construction-Operation

Contractors Offtaker or User

Pay Pay

Consortium of Financing
SPV
Private Sector Form

Commercially Viable Lenders/Sponsors  

Private Sector Project Fiscal Support

PPP
Contract
Public Sector
Awarded

Guarantee

Economically Viable Project Government ODA/

Loan/TA
OOF
BUT MANY OF INFRASTRUCTURE
PROJECTS ARE NOT FINANCIALLY
VIABLE…

•  Investment Decision: Do we need to buy this project?

•  Procurement Decision: What is the best financing scheme
to deliver the project?
•  Public
•  Private
•  PPP

•  Implementation Strategy: What is the most efficient and

effective institutional arrangement to execute the project?
 WHAT IS PPP

Source:World Bank, 2007

USING THE PSC TO EVALUATE PFP BIDS

$ Cost
(Presen


t Value)
Indicator of Value
Transferable
Risk
for Money

Present Value
Competitive of Government
Neutrality Payments to
Raw PSC Bidder

Retained Risk

Retained Risk

PS Bid

C
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FINANCING INFRASTRUCTURE IN
INDONESIA
•  Geographical challenges
•  Uneven distribution
•  Lack of infrastructure for decades
•  Lack of public funds
•  Lack of capability to attract PSP
INFRASTRUCTURE INDUSTRY

Source:  Fauziah  Zen  (2016)

Port and Maritime Nexus

Indonesia’s maritime logistics: west-east corridor

challenges

Kuala Tanjung Bitung

2199 km
1343 km

The distance from Surabaya to Jayapura is longer than

the distance from London to Istanbul
 INFRASTRUCTURE QUALITY
Infrastructure quality in ASEAN Member States, 2018  

Brunei   Cambodia   Indonesia   Laos   Malaysia   Philippines   Singapore   Thailand   Viet  Nam  
   
Overall   4.4   3.4   4.1   3.8   5.3   3.0   6.4   4.1   3.6  
Road   4.8   3.2   4.1   3.3   5.3   3.1   6.3   4.3   3.4  
Railroad   -­‐-­‐   1.6   4.2   -­‐   5.0   1.9   5.9   2.6   3.0  
Sea  Port   3.9   3.7   4.0   2.3   5.4   2.9   6.7   4.3   3.7  
Air transport   4.5   3.7   4.8   3.8   5.7   2.9   6.9   5.2   3.8  

Infrastructure 2014 2018

Indonesia Rank Value Rank Value

Source:WEF 2018
Overall 72 4.2 68 4.1

Roads 72 3.9 64 4.1

Railroad 41 3.7 30 4.2

Port 77 4.0 72 4.0

Airline 64 4.5 51 4.8

Electricity 84 4.3 86 4.4

Maritime Connectivity
CONNECTIVITY WITH OUTSIDE IS STRONGER THAN THAT
OF INTRA-ASEAN
Intra ASEAN Cambodia Indonesia Malaysia Myanmar Philippines Singapore Thailand Viet Nam
Indonesia 0.224 - 0.455 0.264 0.319 0.472 0.420 0.407
Malaysia 0.294 0.455 - 0.322 0.379 0.783 0.506 0.531
Philippines 0.274 0.319 0.379 0.229 - 0.392 0.356 0.326
Singapore 0.302 0.472 0.783 0.323 0.392 - 0.527 0.557
Thailand 0.299 0.420 0.506 0.284 0.356 0.527 - 0.476
Viet Nam 0.294 0.407 0.531 0.281 0.326 0.557 0.476 -

ASEAN- China, HK China,

Australia China India Japan ROK New Zealand Pakistan Sri Lanka
Asia_Pacific SAR Taiwan
Indonesia 0.355 0.411 0.427 0.369 0.386 0.366 0.380 0.316 0.337 0.386
Malaysia 0.445 0.753 0.664 0.567 0.565 0.531 0.690 0.387 0.486 0.644
Philippines 0.313 0.417 0.375 0.387 0.349 0.354 0.394 0.302 0.291 0.321
Singapore 0.471 0.776 0.683 0.610 0.573 0.559 0.718 0.404 0.489 0.648
Thailand 0.398 0.497 0.479 0.444 0.387 0.455 0.465 0.327 0.370 0.447
Viet Nam 0.344 0.600 0.510 0.494 0.413 0.452 0.540 0.349 0.364 0.445

ASEAN-
United Netherlan
North USA Canada Belgium France Germany Greece Italy Malta Spain
Kingdom ds
America_EU
Indonesia 0.415 0.385 0.368 0.340 0.359 0.333 0.317 0.332 0.316 0.359 0.362
Malaysia 0.590 0.467 0.651 0.665 0.618 0.646 0.502 0.580 0.492 0.632 0.651
Philippines 0.341 0.312 0.326 0.331 0.317 0.319 0.270 0.327 0.273 0.317 0.321
Singapore 0.628 0.496 0.687 0.701 0.662 0.682 0.516 0.640 0.531 0.663 0.692
Thailand 0.473 0.426 0.450 0.456 0.400 0.444 0.340 0.372 0.346 0.441 0.403
Viet Nam 0.519 0.438 0.456 0.514 0.495 0.507 0.402 0.486 0.459 0.499 0.463

Source: UNCTAD, 2018

Red: bilateral liner index >0.6 (strong connectivity)

Green: bilateral liner index 0.4< i < 0.6 (moderate connectivity)
 Brunei, (large part of) Indonesia, and Philippines are located outside the major sea lanes

https://people.hofstra.edu/geotrans/eng/ch1en/appl1en/img/shippinglanespacificasia.png
 QUALITY INFRASTRUCTURE
DIMENSIONS
-  Effective resources -  Good governance
mobilization -  Development of
-  Life-cycle cost infrastructure
-  Opportunity cost Cost Institutional market & related
-  Socio-economic costs markets
-  Capacity

-  Output Delivery &

Impact
-  Fulfilled demand Usage
-  Sustainability -  Economic
-  Safety & resilience -  Social
-  Standard conformance -  Environment
-  Service excellence

Challenges Assessment (Potential

•  Political intervention over economic rationale Indicators)
•  Persistence of traditional procurement paradigm & •  Innovative financing
lack of competitive neutrality •  Standard conformance
•  Public sector capacity •  Innovation/technology adoption
•  Perception of costly environmental compliance •  Inclusiveness
•  Infra-market & related markets are overlooked
•  Post-project evaluation: benefits and costs
 Showcase #2: Provision of Long Tenor Loan with Long Grace Period
Trans Sumatera Toll Road : Medan – Binjai

Project Structure Project Profile

Project Construction of Trans Sumatera Toll Road section

Description Palembang – Indralaya for 21.9 km
PMN to HK
Location Southern Sumatera
Rp 2.1 trillion
Project Cost Rp 3.3 trillion
Investment Tranche A
need of Rp Rp 690.34 billion PT SMI Role Long tenor financing combined with provision of Cash
Deficiency Support – CDS to cover cash flow constraint
3.3 trillion Loan from PT during ramp up period
Tranche B
SMI Rp 1.24 Rp 300 billlion Portion Loan investment facility of Rp 1.24 trillion include Rp 250
trillion billion of CDS
Tranche C
Rp 250 billion Thematic Provision of long tenor financing up to 25 years with long
grace period up to 15 years, combined with CDS feature

Progress Operationalized
a)  Tranche A : 25 years (Grace Period 15 years)
Tenor b)  Tranche B : 15 years (Grace Period 5 years) Benefit •  Having strategic value to fulfill the needs of
c)  Tranche C : 25 years (Grace Period 15 years) transportation for human and goods & services
Tranche B portion to be sold down. •  Reduce congestion along the line and shorten travelling
Notes Tranche C Standby Facility in the form of Cash Deficiency time
Support

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Terima kasih