PublicInvestmentManagementAssessment:ExperiencesfromIndonesia

TaufikHanafiDeputyMinisterforDevelopmentMonitoring, Evaluation,andControl

MinistryofNationalDevelopmentPlanning/NationalDevelopmentPlanningAgency

PresentedatTokyoFiscalForum2019inSession2:MakingPublicInvestmentMoreEfficientinAsia”

Tokyo, November20-21,2019

Most populous country in the world

Largest economy in the world

Private consumption grows steadily

4th

16th

±5%

Indonesia is a huge potential market in Asia 5thLargest emerging market with the best middle class potential

Source: BPS, Team Analysis

2

Realizing Indonesia’s Potential

3

Indonesia 2045High Income Country and 5th GDP in the World

ESCAPE FROM MIDDLE-INCOME TRAP (MIT)

Year

2036

GDP PER CAPITA 2015

US$3,377

US$23,199LARGEST GDP 2015

16th

5thin the world

DEMOGRAPHIC BONUS

~2040

INVESTMENT

FDI inflows ratio to GDP

4.5%Investment share of GDP

38.1%

2015

FDI Inflows ratio

to GDP

2.3%Investment

share of GDP

32.8%

INFRASTRUCTUREPOVERTY LEVEL GINI RATIO

REGIONAL DEVELOPMENT

2018

9.66%

2045

~ 0 %

2015 2045JavaOutside Java

58.3%41.7%

51.8%48.2%

KBIKTI

80.5%19.5%

74.9%25.1%

Logistic cost in 2045 will be reduced to

8% GDP. Infrastructure Stock increases to

70% GDP in 2045.

4

Economy of Eastern Indonesian Region (KTI) and Outside Javagrows higher while maintaining growth momentum in Java

Direction of Regional Development

Papua

Bali, Nusa Tenggara & Maluku

Sulawesi

Kalimantan

Java

Sumatera

National Food Basis & Resources-based Economy

International Tourism & National Fishery Basis

Food Industry Basis & Gate for KTI

Manufacturing Industry & National Energy Basis

Trade & Services Basis

New Industrial Basis & Gate to Asia Region

Strategy:• Accessibility and quality of basic services• Social protection• Asset tenure and financial inclusiveness• Entrepreneurship and access to productive

resource• Fiscal policy• Public participation in social, politics, and economy

Strategy:§ Enhancing physical and virtual

connectivity§ Promoting equitable development

among regions§ Fulfilling access for basic services§ Supporting urban and Rural

Development§ Anticipation of natural disaster and

climate change, including sea-level rises

2018

0.3842045

0.34-0.35

KBI:WesternIndonesianRegion

Indonesia 2045Equitable Development

High and Stable Economic Growth

Progressive Infrastructure Development

5.1

0

1

2

3

4

5

6

2014 2015 2016 2017 2018 2019*

GDP Growth (%)

Source: BPS (*Q2 2019)

Indonesia is projected to be thelargest economy in the world by 20504th

Source: World in 2050, PWC

Indonesia’s Development Achievements

Continuous Improvement in Indonesia’s Credit Ratings

Indonesia Continues to Improve Its Business Climate

BBB-BBB

59.15 58.12

61.52

66.4767.96

40

45

50

55

60

65

70

2015 2016 2017 2018 2019

E O D B S COR E

Vietnam Indonesia India Philippines Myanmar

5Source: Worldbank, 2019Source: Standard & Poor's Global Ratings

-15

-10

-5

0

5

10

15

1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018

Indonesianeconomicgrowth (%yoy)low growth

base soaring oil prices

falling oil prices

growth of the manufacturing &

liberalization sector soaring commodity prices

Asian Financial Crisis

average2000-2018

5.3%

average1980-1996

6.4%

average1968-1979

7.5%

Extra efforts are needed to increase and maintain Indonesia's economic growth….

Source:BPS,CEIC(processed)

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Economic growth (%)

Urgency to Stabilize Indonesia's Economic Growth

6

Challenges for Economic Growth

Infrastructure:Inadequate, especially connectivity

Human Resources is a binding constraint for medium-long term economic growth

Fiscal:Low tax revenue

(If it is not resolved at this time, it will prevent Indonesia from competing in the digital era and turning to high-tech manufacturing)

Inhibiting Indonesia's Economic Growth (Illustration of Water Vessel)

The Most Binding ConstraintBinding Constraint

Not Binding Constraint

Future Binding Constraint(If not resolved, it will prevent Indonesia from competing in the digital era and move to high-tech manufacturing)

Regulation and Institutions• The regulations do not support the creation and development of

businesses, and even tend to limit, especially on investment regulations

• Low quality institutions• Weak coordination between policies

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Source: Logistic Performance Index, World Bank (2018)

42.5%

4,210.2

-

1,000

2,000

3,000

4,000

5,000

-

20

40

60

80

100

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

as % of GDP Capital Stock

Source: Prospera

RpTr

illio

n

Perc

ent (

%)

Indonesia’s Infrastructure Stock

IndonesiaUK

43%57%

76%87%

Sources: World Bank (2015), Mckinsey Global Institute Report (2013)

CanadaIndia

USAGermany

Spain PolandChina

South Africa

Italy

58% 58% 64% 71% 73%80% 82%

43%vsaverage70%

Global Infrastructure Stock

6026 46

China

41

Malaysia

3932

Thailand Vietnam Indonesia Philippines

8% 8% 9% 9%

13% 13% 13% 14% 15%

20%

24%

Infrastructure and Logistic Performance:Global vs Indonesia

Logistic Performance Index

Singapore

7

Logistic Cost (% of GDP)

Source: Ministry of Industry of The Republic of Indonesia 8

Strengthening Economic Resilience for Quality Growth

Developing Areas to Reduce Inequality

Increasing Human Resources Quality and Competitiveness

Mental Revolution and Cultural Development

Strengthening Infrastructure to Support Economic Development and Basic Services

Building the Environment, Enhancing Disaster Resilience and Climate Change

Strengthening Politic, Law, Security Stability and Transforming Public Services

7 Development AgendaMedium-term National Development Plan 2020-2024

9

10

AsiaandIndonesia’sInfrastructureInvestmentNeed

-

40

80

120

160

200

Indo

nesia

(201

7)

Brazil

Unite

dKingdo

m

Canada

India

Unite

dStates

Germ

any

Spain

China

Poland

Italy

SouthAfric

a

Japan

Average excludingJapan(70%)

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

-

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

TotalStockas%

ofG

DP

IDRTrillion

TotalCapitalStock TotalStockas%ofGDP

INDONESIA’SINFRASTRUCTURECAPITAL STOCK

Indonesia’sInfrastructureGapin2005to2015=USD1.5trillionorIDR20,250trillion

Indonesia’sInfrastructureGap=27%GDP

Source:Indonesia- Prospera Infradashboard (2018),Others:McKinsey(2013)

FUTUREINFRASTRUCTUREINVESTMENTNEEDINASIA

Thistranslateto$1.7 trillionperyear

Source:ADB(2018)

2016 2030$26 trillion

*Including PRC

CurrentInvestmentperyear

$881billionInvestmentGapperyear

$459billion

SOCIALINFRASTRUCTUREINVESTMENTGAP

PolicyAction#1(A):IntegratedBasicServices

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National Drinking Water Access 2016: 61,12%

2018: 61,29%2024: 100,00%

National Sanitation Access2016: 76,37%

2018: 77,91%2024: 100,00%

Decrease Open Defecation

2016: 11,68%

2018: 9,36%2024: 0,00%

National Housing Access

2016: 37,2%

2018: 38,30%2024: 52,78%

Integrated dam usage:Water, Food, Energy Nexus

Waterfoodenergynexustoimproveservicesfordrinkingwater,irrigationandhydropowerneeds.In2024,wefocuseson completingconstruction oftheremaining36dams

KualaTanjung IEBatubara,North SumatraTotalArea:365HaMainConnectivity:KualaTanjungPort,KualaNamu Airport,KualaTanjung Railway

Dumai IEBengkalis, RiauTotalArea:467HaMainConnectivity:Dumai Port,Dumai Airport

Jambi IEMuaro Jambi,JambiTotalArea:313HaMainConnectivity :JambiPort,SultanThaha Airport

TanjungApi-api IEBanyuasin, South SumatraTotalArea:373HaMainConnectivity:TanjungApi-api Port,SultanMahmudBadaruddin Airport

Tanggamus IELampung Selatan,LampungTotalArea:10HaMainConnectivity:Panjang Port,Bakauheni Port and Raden Inten II Airport

ArunLhoksumaweSpecialEconomicZoneLhoksumawe, AcehTotalArea:2623HaMainConnectivity:KruengGeukeuh Port,Arun-LhoksumawePort

SeiMangkei IESimalungun, North SumatraTotalArea:2002,7 HaMainConnectivity:Belawan andKualaTanjung Port,TransSumatera Toll,TransSumateraRailway

Tj.Kelayang SpecialEconomicZoneBanyuasin, South SumatraTotalArea:373HaMainConnectivity:TanjungApi-api Port,SultanMahmudBadaruddin Airport

InfrastructureforPriorityDevelopment inSumatraRegion

PolicyAction#1(B):InfrastructuretoSupportEconomicSector

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SeaTollsDevelopmentConcept

Thedevelopmentofportshubwithoperationalstandardsare2portsin2020and7ports in2024

New Airport2016: 4 airport

2018: 11 airport2024: 20 airport

Construction of Railroad Track (cumulative)

2016: 144 Km

2018: 735 Km2024: 1350 Km

Construction of New Road (cumulative)

2016: 1845 Km

2018: 3482 Km2024: 3000 Km

Construction of Toll Road (cumulative)

2016: 213 Km

2018: 1180 Km2024: 3000 Km

PolicyAction#1(C):IntegratedUrbanDevelopment:MetropolitanArea

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Institutional/authoritylimitationsthatareabletointegratethedevelopmentofurbantransportationacrossadministrationsandacrosstransportsystemsinthemetropolitanarea

• MetropolitanArea(UrbanAreaBased,Population>1millioninhabitants)• Hasapolicy/strategyfordevelopingurbanmobility• Regionalfiscalcapacity• Policycommitments,budgets,andoptimizationofotherrevenuesources

• PreFeasibilityStudy thataccommodatesmodalchoice,socialfeasibility,environment

• Optimizingsourcesoffinancingforbusinessentitiesand/orprivatesector

RTRW,RDTR,UrbanMobilityPlanandPolicy,TransportationMasterPlan

NewParadigmofInvestinginInfrastructureTotalInvestmentRequired forInfrastructure in Indonesia

*)source:Bappenas analysist**)Calculation basedonProspera AnalysisforRPJMN2020– 2024thatstillbeingfinalised

InfraSAP recommendation has been implemented:

The government should systematically leverage private sector financing where feasible and maximize finance for development

Paiton Powerplant (3390MW)PTPaiton Energy - PTjawa Power– PTPembangkitan JawaBali

MRTJakarta– 16KM–USD 1,1B –4consortiums• JV–SOE- Statebudget- RegionalBudget - JICAloan

IPP1.3GW

EquityfinancingUSD13M

Partof

WaskitaToll RoadShareDivestmentUSD10B

2018StateBudgetforInfrastructure

Verticalhousing13,405units

PalapaRingUSD545M

UmbulanWaterSupplyUSD140.7M

USD28B Newroads432km

GovernmentBudget:

USD148.2B

(41,3%)

StateOwnedEnterprises:

USD79.8B

(22,2%)

Private:

USD131.1B

(36,5%)

TOTAL:USD359.2Bn(2015-2019)*1)

In2020-2024infrastructureinvestmentrequires

Approx. USD441.3B**)

“governmentencourages theinvolvementoftheprivatesectorininfrastructuredevelopment”

PRIVATE

PPP

StateBudget(APBN/D)

JVSOEs(greenfield)

JVSOEs(brownfield)

PINA

MentawaiOff-gridBiomassPlant USD27.7M

PolicyAction#2:NewParadigminInfrastructureInvestmentFramework

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PolicyAction#3:Improvingprojectdeliverables...IndicativeActionPlanadoptingIMF’sPIMArecommendations...

PIMAAssessment1. Institutional Design: Project

appraisalisrequiredbutnostandardmethodologyandnosystematicriskassessment.

2. Effectiveness:Someprojectsareappraised,usingnonstandardmethodologyandwithlimitedcentralsupport.

PIMAAssessment1. Institutional Design: Projects

reviewedandselectedbyBappenasandMoF,butnopipelineofappraisedprojects.

2. Effectiveness:Qualitycontrol isweak,exceptfor donor-fundedandnationalstrategicprojects,includingPPPs.

Action Plan• Currently loan and grants project

and PPP project has alreadyconsider technical feasibility andreadiness criteria in projectappraisal

• We are currently improving andexpanding this effort by adoptingmore critical assessment tool (5Case Model: Strategic, Economic,Commercial, Financial, andManagement) from UK Governmentin order to standardize the appraisalsystem in infrastructure project

NationalandSectoralPlans

Action Plan• Improving project selection and

pipeline.• The major project will be the base

of multi years budgeting andguidelines for the Strategic Plan ofline ministries/agencies, FundingSource Documents, PPP Book, andNational Strategic Project

PIMAAssessment1. Institutional Design:Medium-term

developmentplans presentprogramswithnumericaltargetsandindicativecosts.

2. Effectiveness:Absenceofproject-levelinformationlimitseffectiveness.

Action Plan• In Mid-term NationalDevelopment Plans 2020 –2024, we have innovation topresent the major projects thatwill be implemented on 5years.

ProjectSelection ProjectAppraisal Portfoliomanagementandoversight

PIMAAssessment1. Institutional Design: Bappenas

monitors implementationofworkprogramsbutnosystematicex-postreview.

2. Effectiveness:Limitedfocusoninvestments,in particularonmulti-yearprojects,exceptforstrategicprojects.

Action Plan• Improving monitoring andevaluation not only limited toimpact and outcome but also inthe level of project

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THANK YOU

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