Improving Efficiency and Effectiveness of Infrastructure Spending by Enhancing the Public Investment Management System in Indonesia

Improving Efficiency and Effectiveness of Infrastructure Spending by Enhancing the Public Investment Management System in Indonesia

This paper discusses issues such as infrastructure demand and supply, prioritization of infrastructure projects, and key infrastructure projects in Indonesia. This paper also provides policy recommendations on budget allocation and management on infrastructure, as well as the selection of financing methods among various resources on a specific project by sharing institutional arrangements with Korea. First, it is necessary to introduce a unified public investment management system by enhancing the role of the budget ministry on the selection of projects and their type of financing. Given the budget constraints and infrastructure gaps in Indonesia, improving efficiency and effectiveness of infrastructure spending are recognized as critical issues for the budget ministry. Second, strict and rigorous economic analysis is a crucial component to objectively and transparently select a project. It is recommended to conduct pilot studies on the actual infrastructure investment project, as well as to provide capacity building programs for officials in relevant ministries. Lastly, while both public-private partnership (PPP) projects and stateowned enterprise (SOE) invested projects can contribute to infrastructure implementation, it is necessary to assess the bankability and viability of a project. Rigorous and objective assessment for a candidate project is essential in deciding the best financial solution. In the long term, we recommend tax reform or the establishment of special accounts for infrastructure. A special or earmarked tax can be utilized to establish special accounts for infrastructure financing.