Indonesia's rusting infrastructure stymies growth

MERAK, Indonesia (Reuters) - Indonesia’s rust-bucket ferries are a symbol of the decrepit infrastructure which has plagued Southeast Asia’s biggest economy and prevented it from matching China’s meteoric growth rate.

A woman (R) rests in a commuter train in Jakarta November 29, 2007. REUTERS/Beawiharta

Delivering a truckload of goods across one of the biggest of the 17,000 islands in Indonesia’s archipelago can take a week, when a journey of the same distance might take a day in Europe or the United States.

At Merak, a busy port on the western tip of Java island, lorries loaded with coffee, sugar and fruit from the island of Sumatra drive off a rusty ferry. Trucks carrying brand new motorbikes take their place for the three-hour ferry ride across choppy seas to southern Sumatra.

When the ferry docks in resource-rich Sumatra, some of the trucks must then navigate their way through narrow, dirt roads over mountains and through forests to Banda Aceh in the north. The 1,600 km journey might take close to a week.

From the island of Sabang in the west to Merauke in the east, Indonesia spans over 5,000 km, or roughly the distance from Anchorage, Alaska to New York City. Indonesia is heavily dependent on ferries for transport between its islands.

Yet years of neglect and a lack of funding in the wake of the Asian financial crisis mean that much of Indonesia’s infrastructure needs to be modernized or expanded.

“Infrastructure is key to Indonesia’s success,” says Edwin Soeryadjaya, whose firm Saratoga Capital has invested in a section of the Trans-Java tollroad, an ambitious project that will stretch over 1,000 km from one end of Java to the other by the time it is completed in 2010.

New infrastructure could help Indonesia’s growth rate spurt from 6.3 percent in 2007 to as much as 8 percent, said Bill Belchere, a Hong Kong-based economist at Macquarie Securities.

In parts of Java where better infrastructure has been built, there are obvious economic benefits such as jobs and tourism. At weekends, Jakartans flock to the once-sleepy hill city of Bandung as a new tollroad has cut travel time in half to two hours, leading to brisk business for hotels and shopping malls there.


Transport Minister Jusman Syafi’i Djamal estimates Indonesia needs a minimum investment of about 25 trillion rupiah ($2.67 billion) a year for the next decade to overhaul its transport.

“We want to improve and modernize all the infrastructure, to improve trains, ships, aviation and land transport,” he told Reuters in an interview late last year.

Djamal, who was previously with the National Transportation and Security Evaluation body, has one of the toughest jobs in the cabinet -- improving the reputation of a transport system that has become a byword for disasters.

A string of fatal accidents, many caused by bad weather, poor maintenance, or sloppy practices, cost Djamal’s predecessor the transport job and prompted the European Union to ban all 51 Indonesian airlines from its airspace on safety grounds.

An Adam Air airplane disappeared into the sea a year ago with 102 passengers and crew on board, while a Garuda Indonesia plane crashed at Yogyakarta airport in March, killing 21 people, after the pilot ignored 15 warnings and descended too rapidly.

Djamal says Indonesia has responded with improvements such as plans to buy new planes and better safety practices, and it hopes to get the ban overturned in the next few months.

But he still has plenty of work to do on the railways, roads and ferries. A few months ago, he ordered 10 of the 24 ferries at Merak to be taken out of service and repaired, causing disruptions and long tailbacks at the port.

“People were angry with me because suddenly there were traffic jams,” said Djamal, “but safety and security is the first priority.”

Even so, some accidents are beyond his control, he says.

In October, a ferry capsized off Sulawesi when passengers rushed to the upper deck to get a mobile phone signal from a nearby transmitter: a local radio station had offered a free car to the first person to call in and the passengers wanted to try their luck. Police said at least 30 people died.


With foreign direct investment in Indonesia bouncing back, analysts say it should be easy to attract funding.

“The issue is not the funding, the issue is the spending, and the ability of central and local governments to implement these plans,” said Fauzi Ichsan, an economist at Standard Chartered.

“Land clearance is the biggest hurdle, because no one has the power to make land clearance for these projects compulsory. This can be done under a more authoritarian government, but this is the price of democracy.”

The engineering feats involved are a further challenge. Much of Indonesia’s terrain, particularly in resource-rich areas, is mountainous, heavily forested, or at risk from landslides, floods, and seismic activity, which makes construction difficult.

So while there’s talk of building a bridge across the Sunda Strait to connect Java and Sumatra and replace the existing antiquated ferries, the $10 billion project is controversial.

This part of the archipelago suffers frequent earthquakes and is close to Anak Krakatau, an active volcano which burst into life again just weeks after the two local governments backing the project decided to push ahead with a feasibility study.

Transport Minister Djamal said that his priorities are to fix the railways, provide ferry services to link the easternmost islands, and build new airports in Papua which is difficult to cross by land.

In Sumatra, he wants to cut travel from one end of the island to the other from days to five hours using a high-speed train.

While many investors worried about China’s massive spending on infrastructure projects in the 1990s, the investment paid off and laid the foundation for very strong growth, analysts say.

“In Indonesia, a lot of local manufacturers have trouble moving things about the country, which leads to higher inflation,” said Belchere, from Macquarie Securities. “You limit your ability to hit a 7 to 8 percent growth rate if you don’t get ahead of these bottlenecks.”

Additional reporting by Telly Nathalia, Ahmad Pathoni, and Harry Suhartono; editing by Megan Goldin