Indonesia expected to scrap RM74b worth of infrastructure projects

JAKARTA: Indonesia’s chief economic minister said on Monday that 14 infrastructure projects, worth 264 trillion rupiah (RM74.5 billion), are expected to be dropped from the government’s strategic development plan due to lack of progress.

These projects will be dropped if they don’t meet some requirements by the third quarter of 2019, Darmin Nasution said, which is the end of President Joko Widodo’s current term.

Infrastructure development is one of Widodo’s main economic platforms as the economy struggles to remove logistical bottlenecks.

Nasution said the government wants to focus on the 222 infrastructure that are still on its list of “strategic projects”, with a combined value of around 4,100 trillion rupiah.

Rating agencies have previously warned that balance sheets of state- owned enterprises (SOEs), which have been taking up most of the government’s infrastructure projects, have worsened as they took on more debt to fund projects.

“By slowing the pace of implementation, it could mean the government is prioritising infrastructure projects, which may limit contingent liability risk, but have implications for medium-term growth,” Moody’s sovereign analyst Anushka Shah told Reuters ahead of Nasution’s announcement.

Moody’s upgraded Indonesia to one notch above its lowest investment grade last week, a move that could help Southeast Asia’s largest economy get cheaper financing for its projects.

But the agency said there was a risk of SOEs’ financial strength materially worsening to the point that it could hurt state finances.

S&P cautioned against the same issue last month and the government has said it would monitor liquidity risks of SOEs, especially those in construction and power sectors.

There were also safety concerns that led to the government suspending a number of road and rail construction projects for a short evaluation earlier this year.

Among the projects expected to be dropped are railways in Kalimantan and South Sumatra and several airport and sea port projects in Java.

“There are projects that have land (acquisition) problems, investor problems, and even there are problems related to the feasibility of the project itself,” Transportation Minister Budi Karya Sumadi told reporters.

Nasution said the next government was welcome to reassess and resume the projects, if deemed necessary.