RISING DER OF SOES (INFRASTRUCTURE) POSES INDIRECT FISCAL RISKS, CAN ASSETS RECYCLING BE A SOLUTION?
The financial burden placed on Indonesian state-controlled companies to develop infrastructure could result in higher fiscal risks for the government. OECD economic report 2018 at IMF –WB Nusa Dua Forum, the presence of Indonesian state-owned enterprises across the economy is more extensive than any other country it monitors, except for China.
Debt taken on by these companies to finance infrastructure projects could expose them to cash-flow constraints, "particularly if interest rates increase or projects are delayed," according to the report.
"Recognized contingent liabilities were only 0.01 percent of GDP in 2017, as these are confined to government guaranteed loans. But the potential need for capital injections represents an indirect fiscal risk," the report said.
As the government has pushed state infrastructure developers, 2,99% DER of construction-SOE has above 1.03% average industry. Government need to diversify funding source from debt to equity-based financing to help mitigate this risk.
Jokowi 2nd term, in order to boost the export, must take the lead to meet this massive need, they cannot fund this level of infrastructure investment alone, while many governments such as Vietnam and Thailand are trying to position their countries as favorable destinations for private infrastructure investment.
INFRASTRUCTURE ASSET RECYCLING AS A SOLUTION
One Potential funding option is infrastructure asset recycling. The concept of asset recycling consists of two main components:
1. Monetizing existing infrastructure assets through sale or lease to the private sector, followed by
2. Investing in new infrastructure using the proceeds received from asset monetization
Asset recycling holds out the possibility of providing new infrastructure without adding to public debt, while maintaining or potentially improving existing infrastructure service delivery.
Our neighbor country, The Australian model of infrastructure asset recycling shows that good governance is key to making it work in Indonesia.
New South Wales (NSW), a state that has had some success in asset recycling, created an independent agency to oversee its program. The agency is staffed by employees with private sector experience. Senior public figures are on the board to ensure independence.
The result has been an asset-recycling program that received high prices for government assets and has prioritized new projects based on cost and impact. Many other country have adopted this model, which will be key for Indonesia too.
Recycling directs money to new infrastructure
Under an asset-recycling scheme, governments lease existing champion infrastructure assets to private companies and invest the proceeds in new infrastructure projects.
Infrastructure asset recycling manages to fund new projects by addressing the mismatch between government infrastructure promises and the goals of private investors.
Private investors prefer to invest in infrastructure that is already built. These investments have lower risk than building something new, and offer the promise of consistent, inflation-adjusted returns over decades.
But the freed-up capital is not really free — governments forgo the future revenues from the leased assets. If the proceeds from privatizing the asset are smaller than the future stream of payments forgone, and new projects do not produce revenues, government might need to levy a new tax or cut programs.
This is why good governance as promising by pak Jokowi is key to ensuring the scheme works. Governments need to get the highest price for their assets and build the best projects for the lowest cost.
I do hope better Indonesia will occur soon as we can work together for this beloved country.
