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Rabu, 01 April 2015

"Perubahan Ekonomi Politik Indonesia dan Pengaruhnya di Sektor Infrastruktur" - Jamie S. Davidson


Beberapa waktu lalu sempat baca sepintas buku ini. Isinya tentang perubahan politikal ekonomi Indonesia khususnya pasca Suharto, dan pengaruhnya terhadap orientasi dan kontestasi kepentingan dari para aktor yang terlibat, khususnya di sektor infrastruktur, lebih khusus lagi di bidang pembangunan dan pengelolaan jalan tol.

Penulisnya, Jamie S. Davidson, menggunakan pendekatan politikal sosiologi dan political ekonomi dalam menganalisis interaksi dan dinamika dari berbagai institusi pemerintahan dan swasta yang terkait. Davidson melihat adanya tarik menarik kepentingan diantara "societal interests, business associations, and rent-seeking." Selain itu Davidson juga melihat adanya proses  "extra-parliamentary lawmaking," di mana internal kementerian terkait (PU) membuat kebijakan tertentu yang memuluskan kepentingan perusahaan tertentu dalam program pembangunan jalan tol, yang sebagian diantaranya bertentangan dengan kebijakan perundang-undangan yang berlaku.

Saya sendiri tidak terlalu terlibat isu ini, namun barangkali ada kawan-kawan lain yang tertarik, serta berminat membeli dan membaca buku ini...

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 Source:
Jamie S. Davidson (2015). Indonesia’s Changing Political Economy: Governing the Roads. Cambridge University Press. (Pp.229-242)

Link:
http://www.amazon.com/Indonesias-Changing-Political-Economy-Governing/dp/1107086884

https://books.google.co.id/books?id=x2i8BQAAQBAJ&printsec=frontcover&dq=Amazon,+Indonesia%E2%80%99s+Changing+Political+Economy&hl=id&sa=X&ei=tF4bVZZtzLW4BLDQgsgI&ved=0CBoQ6AEwAA#v=onepage&q&f=false

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Berikut bagian kesimpulan dari buku Davidson ini:

Infrastructure investment invites controversy. Large projects can acquire a notoriety that even their most irrepressible supporters cannot deny, such as modern highway systems in Germany and Italy and in New York City built by dictators and megalomaniacs; markups in the tens of millions for nuclear reactors in the Philippines; “bridges to nowhere” in Alaska, Japan, and Russia; “white elephant” projects across Africa funded by foreign aid; Boston’s “Big Dig,” years late and billions over budget; glitzy, prestige transportation projects in Beijing and Singapore; the making of “ghost towns” by the opening of bypass highways; enormous dams that uproot millions and that are “massively beneficial to the well-connected construction and engineering companies (domestic and foreign) that build them, to the international development banks that finance them, and to the army of social, economic, and environmental ‘expert’ consultants who plan for and evaluate their wider impacts;”[i] and a superb highway system in a US state (West Virginia) that remains among the country’s poorest.

This infamy, however real, can also sit askance with the conclusions of economists who, through systematic testing, have demonstrated a positive relationship between economic growth and infrastructure. Contrasting conclusions do persist, but a recent state-of-the-field report finds an “increasing consensus around the notion that infrastructure generally matters for growth and production costs, although its impact seems higher at lower levels of income.”[ii]  If this is the case, how are developing countries supposed to go about achieving the goal of improved infrastructure?

For the IFIs, their technocratic strategy revolves around a set of policy guidelines putatively predicated on global success stories (typically from developed economies) that they propose developing countries should adopt and apply. A core feature of this “best practice” approach has been private sector participation. During the latter’s heyday in the 1980s and 1990s, this pro-market perspective saw the state as a provider for an environment of law and order in which property rights and contracts could be enforced reliably. Since the great market failures of the 1997–98 Asian financial crisis, the strategy has undergone some revision, including attempts to enhance institutional capacity in order to regulate market transactions effectively. This involves the implementation of the so-called second generation of reforms with accountability and transparency – in other words, creating good governance. That said, in infrastructure investment, the “best practice” model continues to lay emphasis on engaging the private sector, inducing competition, and allowing for beyond cost-recovery tariffs.

Although in some respects the “best practice” model is a normative and thus an unobtainable ideal, its active promotion by IFIs makes it relevant for developing countries. As this book has shown in considerable detail, this especially has been the case for Indonesia. Since the 1998 downfall of its longtime authoritarian ruler, Soeharto, the country has embarked on wide-ranging IFI-led reform and “best practice” programs aimed at liberalizing (and also reregulating) its economy. Nearly two decades on and some ten years after the World Bank declared Indonesia to be post-crisis, private sector participation in infrastructure has not fared well. Despite concerted efforts, less than 250 km of expressways, for example, have been built in Indonesia since 1999, equivalent to roughly 17 km per year. Even less of this low figure has been built with private sector capital (see Figure 4.1).

This book questioned the efficacy of promoting private sector participation and best model programs in countries that lack key ingredients for their success. Generally speaking, impediments to the wider liberalization of Indonesia’s economy are inter-connected and well known: weak and fragmented state institutions captured by predatory elite interests, ineffective bureaucratic implementation, business–government relations that vacillate from collusive to antagonistic, an incapacitated rule of law, rising economic nationalism, and an uncertain investment climate – in sum, a poor record of economic governance.[iii]

These broad factors accurately depict current conditions in Indonesia. This book argued, however, that these obstacles manifest themselves in key sectors. In other words, analytically it has sought greater specification of the factors that are bedeviling private sector participation in infrastructure projects. To do so, I focused on the curiously understudied toll-road sector. Few sectors were as publicly associated with the cronyism of Soeharto’s New Order regime as this one. Nevertheless, post-Soeharto administrations have believed in the completion of an expressway linking Jakarta to Surabaya, the country’s two industrial centers, as a key component of sustainable future growth.

This book has not been a conventional transport study. It neither presented an econometric model to assess the efficiency of building the Trans-Java Expressway nor employed an economic geography approach to determine the reaction of firms to the toll road and their subsequent investment and location decisions.[iv]  This study has suggested that the intensive efforts of state officials to induce private sector participation in Indonesia’s expressway sector is principally a political endeavor that can shed critical light on the liberalization of the country’s economy and offer a general lessons for reforming the tollway sector in other developing countries.

The Trans-Java Expressway

The building of the Trans-Java Expressway has been riven with inefficiencies in policymaking and implementation. Even this indisputable conclusion requires qualification, however. The trials and tribulations of constructing this extended inter-regional expressway should not be used as a stick with which to beat countries like Indonesia (and others like it) over the head for failing to reform along “best practice” lines or similarly failing to institute strong versions of OECD-style regulatory capitalism. There are “logical limits” to the adoption of “best practice.”[v] State officials have struggled in the shifting of economic governance in Indonesia from being predicated on the ruler – Soeharto as the ultimate dispenser of patronage – to being premised on rules and procedures.[vi] In the making of megaprojects, cost overruns, delays, and other risks (political, currency, commercial, “acts of God,” and so on) are common, even in states with better development and investment track records than Indonesia’s.[vii] This contextual study has highlighted the considerable complexities that surpass the usual challenges and risks associated with toll-road investment like large-scale immobile capital and long payback periods.

Building a new (or “greenfield”) expressway through the densest corridor of the world’s most densely populated island, in a country with a porous rule of law and an economy that crashed less than two decades ago, number among the most significant of these obstacles. The division of the Trans-Java Expressway’s franchises into mini-concessions in the 1990s under an authoritarian regime did not aid matters. In large part Soeharto distributed these licenses to placate pribumi contractors (with ties to the state) as their resentment over the increasing dominance of his children in the sector, and that of Sino-Indonesian conglomerates retained over the economy, brewed. Even in the mid-1990s frenzy of private investment in Indonesia, when foreign investment in tollways wasmaking its first inroads, investors partnered with the palace children (especially Tutut) to protect their property rights. The distribution of these licenses that were devoid of clearly defined responsibilities and obligations made it difficult for a more democratic state to gain control of the concessions subsequently in order to restart construction of the toll roads. This was readily apparent during Megawati’s government (the third post-Soeharto administration), during which the financial crisis’s impact waned and opportunities for increased public and private infrastructure investment seemed possible again. Officials revoked the licenses of a select number of politically vulnerable private concessionaires in order to transfer them to Jasa Marga, the state toll-road corporation. However, the SOE’s management was hesitant to build these routes because of the company’s indebtedness. The latter stemmed from state directives to build loss-making turnpikes in Medan, Cirebon, and Semarang (with the aim of sparking economic growth); lost revenue due to the Asian financial crisis-led downturn in traffic volume; and the KKNrampant in the sector. JasaMarga’s board needed a “push” by Megawati’s administration to construct only the most commercially promising (Cipularang) route outside Jakarta.

With other revocations held up in the courts, domestic (and foreign) investors, including Jasa Marga, balked at investing without the regulatory reforms they and others had been seeking for some time. These reforms materialized only at the close of Megawati’s term with the passing of the 2004 Road Act. The first notable reform was the automatic tariff adjustment mechanism (indexed to inflation every two years), which for investors and market liberals was an advance over the way raises were determined under Soeharto, that is, at the president’s discretion. The second was the establishment of an independent regulatory agency, which stripped Jasa Marga of its dual function as developer and regulator. For market reformers, this was an essential step in levelling the playing field for all investors. For Jasa Marga officials, the jettisoning of the SOE’s regulatory authority would allow it to unleash the company’s commercial energies. Therefore, the passage of the 2004 Road Act, the swift publication of its implementing regulation, and the hosting of the 2005 Infrastructure Summit were supposed to inspire investor confidence. Nevertheless, impediments remained.

One was the stripping of the Toll-Road Regulatory Agency’s (BPJT) real authority via ministerial regulations. It was placed under the auspices of a Public Works Ministry that had little interest in allowing the new body to operate either independently or autonomously. Controversially, the Road Act enabled such former New Order political entrepreneurs as Jusuf Kalla and Aburizal Bakrie to retain their licenses, assuring that rent-seeking in the sector would continue. The 2006 sale by Kalla and Soeryadjaya to PLUS Expressways of Malaysia of their controlling interest in the Cikampek-Palimanan franchise – the bundling of which into a single concession was legally dubious – brought this realization home. Meanwhile, wary of the private sector, Megawati never allocated state monies in support of PPP projects – for example, those in aid of land acquisition. World Bank staffers in Jakarta seethed with frustration as they considered state financial support of PPP projects a staple of international best practice. In other words, the Indonesian government, in their view, was passing too much of the risk onto the private sector. Not until 2007 did Yudhoyono’s administration make government land acquisition funds (named BLU) available. Apart from inter-ministerial disagreement over how to hold stakeholders accountable in their use, the ability of the BLU funds to speed up the process was constrained by the deep-seated problem of the use of eminent domain powers in Indonesia.

Although multifaceted, the land predicament boils down to one inescapable conclusion: For decades the state has either used the law as a blunt instrument to enforce its way or has resorted to extralegal means. Either way, it has run roughshod over citizens’ concerns or rights. With the army currently out of the picture – and paramilitary involvement restricted to exceptional cases – the situation for landowners has improved but only marginally. In Yudhoyono’s 2005 eminent domain decree, the bulk of authority remained in state hands, and his administration tried to replace the coercive use of the army with the undemocratic strong-arming of the courts as a means to impose the state’s will. Civil society groups mobilized to reject the decree, but the 2006 amendments were hardly less state-heavy. It became evident that the debate over the decrees proved pointless as their impact on the ground was minimal. Here a primary cause stemmed from the mismatch of governance-related incentive structures between central government officials (in charge of toll-road policy) and local functionaries (in charge of land acquisition under decentralization). Cautious of being accused of corruption, alarmed at being the face of government in negotiations with angry citizens, and knowing that in many instances BLU funds were not available because recalcitrant license holders had refused to apply for their use, local officials worked cautiously. Stories also circulated about their purchases of strategic land parcels (through proxies) to drive prices up. This was the means by which they, without any ownership in the turnpikes, would obtain rent. A 2003 World Bank-funded “best practice” consultancy report suggested that if the central government ignored the interests of local officials, they could bring toll-road development to a halt. The report proved prophetic.

Energized by the failure of the 2005 Infrastructure Summit, the Indonesian Toll-Road Operators Association (ATI) lobbied for sectorwide reforms. It convinced Public Works, for example, to distribute the BLU funds to concessionaires who were ready to use them, to lower the interest rates the Finance Ministry was charging for their use, and to limit license holders’ exposure to rising land costs (through a policy known as “land capping”). ATI’s composition limited its effectiveness, however. Contract signatories outnumbered operators, which forced ATI to ally with an informal grouping of signatories.More substantially, the association was powerless over massive delays to key links along northern Java’s littoral whose licenses were held by powerful insiders (and non-ATI members) such as Kalla, Soeryadjaya, and Bakrie. With these segments stalled, a swift connection of Jakarta and Surabaya via the Trans-Java Expressway was thwarted. Proponents of the road’s development potential would have to wait and see whether its vaunted multiplier effect would bear fruit. The complicated negotiations over recentralizing the compulsory purchase of land in the public interest via parliamentary statute extended the wait. On paper the 2012 law may have improved compensatory procedures for affected citizens, but the National Land Agency (BPN) has yet to instill confidence outside a few officials in Jakarta that it has the capacity to speed up acquisition in a fair, effective, or just manner.

Still, as the Trans-Java Expressway (between Jakarta and Surabaya) inches closer to completion, it provides evidence against suggestions that Indonesia is a failed or thoroughly emasculated state. In early 2013, construction of its longest turnpike, Cikampek–Palimanan, began in earnest (and is targeted to open in 2015), while thankfully Bakrie had sold some of his licenses to another Indonesian firm (owned by the tycoon Hary Tanosoedibjo). Jasa Marga has finished sections of turnpikes in Central and East Java; full completion is anticipated.

For the now freed-from-regulatory-duties, partially privatized Jasa Marga, government interference has eased, allowing the firm more leeway in the selection of routes it finances. Of course, certain kinds of political intervention, like handing the firm the rights in 2002 to the decidedly profitable Jakarta Outer Ring Road that helped to rescue the firm from its debt-laden burdens, have been exceptionally beneficial. However, the space created by a more profit-oriented Jasa Marga has not led to a proportionate rise in private sector participation, as the pro-market literature might suggest. Private investors prefer profits and many of the country’s choice routes have been built. (Its most profitable, the Jakarta Inner Ring Road, will revert to the state, not to Jasa Marga, in 2023.) Instead, there has been a proliferation of interest in toll roads by SOEs other than Jasa Marga. The main investors behind Jakarta’s latest planned and exorbitantly priced inner ring road are municipality-owned companies. For the planned 2,700-km Trans-Sumatra Highway, in 2013 the central government appointed the construction SOE, Hutama Karya, as the primary contractor, backed by a yet-to-be-determined government guarantee.[viii] (Not all sections of this US$1 billion undertaking will be tolled.) Nor were private investors represented in consortiums behind the 10-km toll-road that opened on Bali in 2013, and behind a planned turnpike outside of Medan.[ix] Finally, in mid-2014 another SOE construction firm, Waskita Karya, stepped in to build and possibly own the Pejagan-Pemalang section of the Trans-Java Expressway.

Other toll roads have needed substantial subsidies, financed by foreign loans in some instances, to attract private sector participation, even on traffic-dense Java (where traffic densities are, in fact, quite uneven). This pertains to two Central Java routes (Solo–Ngawi and Ngawi–Kertosono), and will be the case in East Java (Pandaan–Malang and Pasuruan–Probolinggo–Banyuwangi) if officials desire the Trans-Java Expressway to be a true end-to-end turnpike one day. For “best practice” proponents, these arrangements epitomize the PPP concept – appropriate risk sharing among key stakeholders, which includes public funding contributions, although the majority of the financing and responsibility for the construction and maintenance of the facility is provided by the private sector. Nevertheless, it is difficult to determine when subsidies reach a point where it is more efficient for the state to build the road if it is capable of doing so and subsequently receive the revenue generated from that road.

Beyond tollways, the government has sought to move on from the failures of the 2005 Infrastructure Summit. With multilateral and bilateral support, in 2009 and 2010 it established two investment and guarantee funds that, among others, aimed to lower the cost of infrastructure financing. At about US$230 million, these funds’ capitalization has fallen short of expectations.[x] However, this did not deter the government from launching amid much fanfare its Master Plan for the Acceleration and Expansion of Economic Development in Indonesia (MP3EI)[xi] in 2011. An ambitious plan of some ninety PPP projects valued at Rp. 536 trillion (nearly US$47 billion), MP3EI was intended to signal the government’s commitment to upgrade infrastructure and, importantly, coordinate efforts at the national level as a means to generate growth and improve the economy’s global competitiveness. Not surprisingly, lapses in financing and institutional capacities have dogged project implementation; the year 2014 may witness the groundbreaking of a mere three projects.[xii] MP3EI has sparked discussions about forming a specialized infrastructure bank that would help overcome weaknesses in Indonesia’s capital markets thatmake, for example, securitizing toll-road assets difficult, in contrast to China. Without “fixing” Indonesia’s eminent domain predicament, questions over the need for the bank have been raised. In all, despite the extensive lip service President Yudhoyono paid to infrastructure development as a priority, he had little to show for his efforts after two terms. To leave behind some type of concrete legacy, he had pinned his hopes on at least officiating the groundbreaking ceremony for the 30-km, US$25 billion Sunda Strait Bridge that will connect Sumatra to Java.[xiii] Instead, this task will be bequeathed to Jokowi, Yudhoyono’s successor.

Political sociology of infrastructure development and its lessons

In part, this book was an attempt to put politics back into the study of infrastructure, a topic that has been dominated by econometric or technocratic approaches. The institutionalists contributed by helping us to understand institutions as the political products of conflict and compromise. With conflict contained and compromise locked in, investor confidence over their property right protections is boosted. However, their approach did not go far enough. Plenty of conflict and compromise takes place outside of formal institutional arrangements and therefore exhibit considerable impact on the quantity and quality of a country’s physical stock of infrastructure. Put differently, while the institutionalists showed that we needed to move beyond “getting the prices right” to understand the levels of infrastructure investment, this book has endeavored to demonstrate that we need to move beyond “getting the institutions” right. “Getting the politics right,” which includes state–society and center–local relations, especially in large, sprawling democracies, is of equal importance. As such, I emphasized power relations, history, social conflict, and informal institutions, paying them more heed than mainstream accounts of infrastructure investment do.

There has been an upsurge in interest within comparative politics in explaining which informal institutions matter and why. Two leading proponents note: “Good institutional analysis requires rigorous attention to both formal and informal rules. Careful attention to informal institutions is critical to understanding the incentives that enable and constrain political behavior.”[xiv] In order to show how political “actors respond to a mix of formal and informal incentives, and [that] in some instances, informal incentives trump the formal ones,”[xv] I adopted what I term a political-sociological approach to infrastructure development. To give this framework empirical weight, this study identified three crucial areas where informal institutions have played key roles in the political economy of expressway building in Indonesia.

The first concerned the relationship among societal interests, business associations, and rent-seeking. Consistent with expectations of a sectoral-based association, ATI sought efficiency enhancing reforms. But the mainstream literature less often recognizes that rent-seeking outcomes can vary within a given sector. For starters, there are positive and negative outcomes. The cases of Kalla and Bakrie represent the latter, and Jasa Marga the former. Combining a focus on firm-level incentive structures and that of broader power relations, we saw that Jasa Marga receives almost all of its revenue from tolls, unlike the companies of Bakrie, Kalla, and even Soeryadjaya. This helps to explain why Jasa Marga has proven to be a reasonable builder of turnpikes (although its operational service record for these roads is patchier). While Kalla and Soeryadjaya’s sale to PLUS was a main cause of their route’s delay, this inefficient outcome pales in comparison to the mess Bakrie’s toll-road firm made of its licenses. This difference reflects a second variation – within negative outcomes. After years of delay, construction on the Cikampek–Palimanan turnpike began in early 2013, in part a result of PLUS’s determination to earn long-term revenue from its investment. Bakrie’s toll-road entity lacked such commitment. After hardly making progress with land purchases, and with BPJT powerless to do much about it, Bakrie first resold his licenses in late 2012. If his toll-road firm was (understandably) waiting for through-traffic from an adjacent section (Cikampek–Palimanan) before investing in its own routes, construction could have started in 2013. Construction of only one of these licenses (Pejagan–Pemalang) first began in mid-2014.

Second, using a political sociology approach, I underscored the importance of extra-parliamentary lawmaking in an expansive account of infrastructure politics. I set the regulation-making within ministries, for example, against that of parliament. Even in Indonesia, the latter is a more rational and publically known rule-bound institution compared to ministries. Out of the spotlight of the press and the reach of nosy reformers, arenas within and among ministries – less constrained by formal rules and less influenced by political parties, civil society, or IFIs – are where hard bargaining among powerful vested interests is often conducted. This frequently results in the reinterpretation or watering down of parliamentary statutes. The behind-the-scenes negotiations that produce decrees may lead to suboptimal outcomes, but it does not mean they matter any less for analysis. To the contrary, it makes their very prominence essential. From the undermining of the authority of BPJT from its inception and tussles with the Finance Ministry over allocation of BLU monies to the questionable handling of recalcitrant investors, the (redundant) reevaluation of concession agreements, and the postponing of putatively automatic tariff hikes, ministerial politics and related decrees matter. In Indonesia, this arena of post-statutory enactment, regulation-making is a critical missing link between studies that seek analytical purchase in the variation of policy outcomes and that of implementation in the field (or lack thereof).

Third, the contested nature of eminent domain is a prominent issue where formal and informal institutions intersect in critical ways. Complicated land tenure laws, infused with locally situated customs and norms, and overlapping governmental jurisdictions make the matter messy and cumbersome. From New York City and Tokyo to China’s metropolises, agreeably grounded treatments of infrastructure attest to the contestation intrinsic to the application of eminent domain powers. Because the problem pervades democracies and non-democracies alike, it brings other governance structures, such as central–local government relations, to the fore. As a result of Indonesia’s decentralization program, misalignment of incentive structures between central and local officials have greatly hampered land acquisition in the public interest. Running a national-level project through dozens of newly autonomous districts in charge of land acquisition without providing those local officials with legal and tangible incentives was misguided. After years of frustration, instead of providing those incentives, central officials simply recentralized the authority, placing its responsibility in the hands of a body (BPN) that, as currently constituted, is ill-equipped to handle this gargantuan task. Equally ill-equipped to adjudicate competing claims impartially are Indonesia’s notorious courts. After years of hesitation, state officials are now increasingly relying on them to enforce eminent domain claims. However, the courts are weaker at enforcing the state’s will than the army under the New Order, to the advantage of affected citizens. This has allowed for some – albeit limited – deliberation and negotiation. As long as affected citizens deem compensation to be fair, they continue to express a willingness to release their land rights for a project with developmental benefits, although the Trans-Java Expressway will certainly hasten the deagrarianization of Java.[xvi] But citizen support does waver when assets are transferred to private entities and when compulsory acquisition requires the demolition of occupied houses. Still, land acquisition can proceed at a reasonable pace provided that officials conform to the law. Whether the courts prove to be effective venues or mechanisms to rein in arbitrary actions of state officials remains to be seen. They have not inspired much confidence thus far.

The focus on the land question leads us to consider the policy implications of this study of infrastructure investment in Indonesia. Unlike in industrialized countries where exceptional comparative studies of regulation take institutional capacity as a given,[xvii] most studies of developing economies, almost by fiat, recommend enhancing institutional capacities. While parliamentarians and investors may seethe over BPJT’s weakness, and negotiations are underway to reform the body, the powers-that-be designed BPJT (in post-enactment fashion) to be that way – subservient to state interests. Indeed, feebleness may hold BPJT’s key to survival. Consider the fate of the Upstream Oil and Gas Regulatory Agency (BPMigas), the IRA upon which BPJT was modeled. In late 2012, the country’s Constitutional Court controversially declared it unconstitutional, it is widely believed, for acting how an IRA, in theory, is supposed to act, that is, independently and autonomously. (In this case BPMigas was accused of pandering to foreign firms.)[xviii]

Beyond platitudinous recommendations to shore up institutional capacity, there is also the issue of the timing of reforms. Research has demonstrated the positive effect on private investment when institutional reforms precede privatization.[xix] For toll roads, similar steps should occur with respect to compulsory land acquisition. Laws and the agency in charge of land acquisition need to be in place before private (or even public) investment is sought. Indonesia’s land predicament has kept foreign investment in its toll-road industry to a minimum. Although the bleak commercial outlook of the Trans-Sumatra Highway – divided into seven main sections – has also kept private interest low, we should expect a smoother land acquisition process for this endeavor than for the Trans-Java Expressway, especially now that the 2012 law on the matter, and its attendant regulations, are in place (not to mention Sumatra’s lower population densities).[xx]

The timely acquisition of land can be better achieved if state officials are more willing to pay near-market rates. The argument that paying such rates will lead to a prohibitive escalation in costs is understandable but short sighted. Long delays caused by negotiations over well below market rates cause their own interruptions that compound problems down the line. Moreover, foreign investors in the sector have suggested to me that they consider land prices in Java to be reasonable, unlike land costs in their home countries. Paying near-market rates will allow officials to acquire land more quickly, which in turn leads to subsequent efficiencies – for example, the affordability of time to build quality, safe roads. The practice in Indonesia of slow land acquisition and swift road construction must be reversed.

Not divorced from the land dilemma, the interests of central and local government officials need alignment, given the pervasiveness of decentralization programs worldwide. Even for national-level projects, local officials must be given meaningful input into the decision-making process when these projects “trespass” on local terrain. Otherwise, these functionaries can create unwanted headaches when they are expected to act as mindless implementers of national policy. Notwithstanding attendant
inefficiencies, China’s phenomenal expressway growth in part has been due to the fact that provincial officials have been in charge of the process.[xxi]

Expectations about private sector participation in infrastructure also need to be tempered. This is especially so in countries where the main ingredients for these programs’ success – power of eminent domain, rule of law, strong regulatory authority, and fiscal space – are lacking. Decades of disappointment, featuring high social and fiscal costs, has characterized privatized toll-road programs in Latin America and in Europe, including Spain – the continent’s longest and largest user in terms of capital value – and the UK.[xxii] Tollway construction does not require the sophisticated technological innovation or needs of the telecommunications sector. Thus, foreign or domestic private investment cannot be expected to bring large gains in efficiency. Moreover, the cost-of-funding argument has been proven to be misguided, as the state can collect tolls and thus gain revenue as easily as private entities.[xxiii]

Efforts must also be made to ensure the financial soundness of winning bids. Intent to build rather than sell on the license must be demonstrated, especially among the private sector. Putting a new regulatory regime on paper is insufficient to gauge investor sincerity. While some may see its actions as belligerent, the 70 percent state-owned Jasa Marga has decades of experience in building toll roads and has improved its corporate governance (even if its road maintenance record lags). If it continues to build its routes at a reasonable cost, inducing more private sector participation for the sake of it must be questioned. There must be gains in efficiency, not just distribution.

This point, combined with heavy state bank investment construction in the Trans-Java Expressway, should not lead one to consider that Indonesia is approaching the East Asian developmental state model. The influence of this model – characterized by collaborative government–business relations, dense policy networks, technocratic bureaucracies, control over labor, visionary leadership, and state-led mobilization and direction of resources – has in large part eroded. For some, its fundamentals rested on a peculiar combination of historical contingencies and contextual factors that made its export impractical.[xxiv] For others, the concept became reified, as scholars glossed over missteps, inefficiencies, and tensions within the development state edifice.[xxv] Neither do many pretend that low-income countries today, many of them vibrant but flawed democracies, have the capacity to build the strong state institutions that underpin the model. This is glaringly the case in Indonesia.

That said, if we lower by some margin our expectations of the model, Indonesia’s experience has been and continues to be broadly consistent with Asian economies that exhibit high degrees of state intervention and guidance.[xxvi] The state sector remains robust, and efforts to pare its size have been met with stubborn resistance. The recent upswing in economic nationalism is not wholly restricted to concerns about profits accruing to the state. Rather, profits (and rent) may fill the coffers of private firms, as long as they are Indonesian (and their owners have close working relations with state officials, if they are not state officials themselves). As the case of the Trans-Java Expressway demonstrates, Indonesia can display a kind of a state-led, if not haphazard, developmentalism by default. The state strives to fill the gaps generated by the lack of private sector interest, although not always successfully.

Ideological differences among Indonesian political parties may lead to policy differences on some issues.[xxvii] However, this has been less so for bigticket economic or development ideas and policymaking. Illustratively, parties have neither opposed the building of the Trans-Java Expressway nor have devised implementation or financing alternatives (let alone debate the road’s merits or costs). Instead, they uniformly have seethed over its interminable delays. Even so, in a democratically flawed Indonesia, without the pressures generated by a domestic or foreign threat, state leaders remain sufficiently motivated to produce a policy regime, and oversee its admittedly checkered implementation, where rents, patronage, profits, and pro-growth prescriptions are woven together, albeit uneasily and inefficiently.[xxviii] Foremost is a glaring inability to discipline the business class that will keep an appreciably firm rule of law at bay.[xxix] This creates an environment where the structure of power collides with “best practice” reforms, producing outcomes that are neither singular nor predictable. We can garner evidence to support a range of results, from regulatory progress to policy failure, from impressive growth rates compared with global averages to the phenomenon of “jobless growth,”[xxx] from positive to negative rent-seeking, or from coercive enforcement of state policy to democratic deliberation. The building of the Trans-Java Expressway has been vividly illustrative of these conflicting and complimentary processes and outcomes. This is irrespective of whether the megaproject succeeds in the long term, especially given the social (and environmental) costs it generates and its expense to travel.[xxxi]  The expressway in its entirety may or may not be completed, but if it is realized, it is unlikely to be along the lines market reformers or their detractors had envisioned.




[i] Hall, Hirsch, and Li 2011, p. 138.
[ii] Estache and Fay 2007, p. 6. Emphasis added.
[iii] Aspinall 2013a; Robison and Hadiz 2004; Hamilton-Hart 2007; Lindblad and Thee 2007; Manning and Purnagunawan 2011; Blunt et al. 2012; McLeod 2005a.
[iv] Rothenberg 2011.
[v] Andrews 2012.
[vi] MacIntyre 2000; McLeod 2005a.
[vii] Flyvbjerg et al. 2003; Delmon 2005 and 2011.
[viii] It will be Widodos administrations prerogative whether to honor this designation (Sari 2014).
[ix] For the Bali turnpike consortium, Jasa Marga owns 55 percent, while six other SOEs own another 29 percent (the remaining 16 percent is divided equally between the provincial government and the Bandung district government (see Chapter 4, note 97]). For the 72-km MedanKualanaumTebing Tinggi route, a Jasa Marga-led consortium with three other SOEs was the only bidder to submit tender papers (Amin 2014).
[x] Business Monitor International 2012 (Q4), pp. 78.
[xi] In Indonesian: Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia.
[xii] Djauhar 2012; Kusumawardhani 2013. An airport outside Medan opened in March 2014 was retroactively classified as a MP3EI project. Its construction began in 2008, well before the MP3EI was launched (Natahadibrata and Gunawan 2014).
[xiii] Tampubolon 2012.
[xiv] Helmke and Levitsky 2004 p. 726. Emphasis added.
[xv] Ibid.
[xvi] On deagrarianization in Southeast Asia, see Rigg (2003, pp. 29195).
[xvii] Vogel 1998.
[xviii] Opini: BP Migas Tamat,Tempo, November 2011, p. 31.
[xix] Wallsten 2003.
[xx] However, progress is stagnant. Widodo will have to sign the presidential decree that gives the go ahead for land acquisition (and construction).
[xxi] Lin 2013.
[xxii] Engel et al. 2003; Acerete et al. 2010.
[xxiii] Engel et al. 2003.
[xxiv] Stubbs 2005.
[xxv] Boyd and Ngo 2005.
[xxvi] I thank Mark Thompson for stressing this point.
[xxvii] Mietzner 2013; Horowitz 2013.
[xxviii] On these points more conceptually, see Bertrand (1998) and Doner, Ritchie, and Slater (2005).
[xxix] Aspinall 2013b, p. 240.
[xxx] Saich et al. 2010, vivii.
[xxxi] If average initial tariffs are Rp. 700 per kilometer, the twelve-hour or so drive from Jakarta to Surabaya will cost approximately Rp. 430,400 (US$38) for passenger cars. This excludes fuel costs and vehicular depreciation. Tariffs are considerably higher for freight trucks. In early 2014, a one-way ticket for the hour-and-a-half flight between these two cities could be bought for as low as Rp. 375,000 (about US$32).




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