Indonesian Govt to Dip Into State Coffers for Bloated Chinese-backed Rail Project

Arie Firdaus
Indonesian Govt to Dip Into State Coffers for Bloated Chinese-backed Rail Project A passenger train crosses the Chikubang bridge as it travels from Bandung to Jakarta near Padalarang in West Java, Indonesia, Aug. 25, 2015.

The Indonesian president’s decision to allow the government to share the cost of a financially bloated China-backed railway project could deplete state coffers and lead his nation into a debt trap, experts and an opposition lawmaker warned on Tuesday.

President Joko “Jokowi” Widodo signed a presidential decree last week that authorizes the government to provide cash for the Jakarta-Bandung high-speed railway, China’s flagship One Belt, One Road (OBOR) project in Indonesia, which is about U.S. $2 billion over budget.

A presidential spokesman said Jokowi’s directive would allow the project to be completed, but an economist said this was a bad time for Jokowi to authorize such a move.

“The decision will further burden the state budget, which is already unhealthy due to the pandemic,” Mohammad Faisal, executive director of the Indonesian Center for Reforms of Economics (CORE), told BenarNews.

Jokowi’s new decree overrides a 2015 one signed by him that prohibited the use of state funds for the project – Indonesia’s first venture into constructing a high-speed rail line. The latest decree does not say how much money the government will inject into the project, whose cost has swelled to U.S. $7.9 billion from an estimated $6 billion.

Faisal said state revenues were currently in bad shape.

“The government should get its priorities right,” he said.

Separately on Tuesday, Finance Minister Sri Mulyani Indrawati said that this year’s budget deficit may be higher than earlier estimated. She said it could hit 5.82 percent of gross domestic product (GDP), up from the previous estimate of 5.7 percent, due to COVID-19 measures following a horrific surge in infections between June and August.

Local state-owned companies comprise 60 percent of the PT Kereta Cepat Indonesia China (KCIC) consortium which is building the railway, but the domestic firms operate as commercial entities without government support.

Arya Sinulingga, spokesman for the Ministry of State-Owned Enterprises, said in a statement Sunday that the pandemic had depleted the cash flow of many construction SOEs involved in the high-speed rail project, according to a report in the Jakarta Post.

Ali Mochtar Ngabalin, a presidential spokesmen, said Jokowi was determined to see the project through.

“What’s wrong with using the state budget for a national strategic project so that it can be completed on schedule?” Ngabalin told CNN Indonesia.

However, a politician from the opposition Prosperous Justice Party (PKS), criticized Jokowi for reneging on his earlier decree pledging that his administration would not allow money from state coffers to be spent directly on the high-speed rail project. 

“This is evidence of how badly planned it is,” PKS lawmaker Ecky Awal Mucharam said in a statement.

Big-ticket project

Launched by Jokowi in 2016, the Jakarta-Bandung rail line is expected to shorten the travel time between the Indonesian capital and Bandung to 40 minutes from three hours, officials said.

The project is part of Beijing’s estimated U.S. $1 trillion-plus OBOR infrastructure program to build a network of railways, ports and bridges across 70 countries.

Since construction began in 2017, the rail project has been dogged by criticism about its impacts on surrounding areas, as well as concerns about rising costs.

Critics said it has worsened air quality, clogged canals and damaged homes of many people who live along the 89-mile stretch of the future line.

Rising costs associated with the rail project, along with the government’s intervention in it, could lead Indonesia into a debt trap, said Bhima Yudhistira, director of the Center for Economic and Law Studies (CELIOS).

“The government would then be forced to continue to collect more tax from the public or increase debt in the future,” Bhima told BenarNews.

That means the government may have to borrow to share the cost of the project, which is now scheduled for completion in 2022, three years after its original 2019 deadline.

According to a study by AidData released late last month, Indonesia owes $17.28 billion in “hidden debt” to China, more than four times its $3.90 billion in reported sovereign debt.

Nearly 70 percent of China’s overseas lending is now directed to state-owned companies and private-sector institutions and the debts, for the most part, do not appear on government balance sheets, said AidData, a U.S.-based international development research lab.

“The ‘hidden debt’ problem is less about governments knowing that they will need to service undisclosed debts (with known monetary values) to China than it is about governments not knowing the monetary value of debts to China that they may or may not have to service in the future,” it said.

But this is not hidden debt, according to a deputy at the Coordinating Ministry for Economic Affairs.

“They are investments by Chinese companies,” Iskandar Simorangkir told BenarNews.

Parliament ‘must uncover the real reason’

Bhima, from CELIOS, urged the House of Representatives (DPR) to evaluate the project.

“The DPR must uncover the real reason why the cost [of the project] has swollen. It’s dangerous in the long term for the state finances,” Bhima said.

In addition to cost overruns, the rail line cannot be commercially viable, according to Agus Pambagio, a public policy expert and former trade negotiator for the government. The reason, he said, is that the rail line’s stations are not located at busy city centers.

“I told Jokowi that these things could happen. It was a miscalculation from the beginning,” Agus told CNN Indonesia.

According to the Ministry of State-Owned Enterprises, design changes and rising land prices were factors behind the project’s cost overrun.

“Almost all countries have experienced the same thing and this is our first [high-speed train project],” ministry spokesman Arya said.

Agung Budi Waskito, the chief executive of PT Wijaya Karya, which is part of the consortium of local companies, said in April that the group was negotiating for China to increase its stake in the project, because of the rising cost.

Since then, there has been no word on how those negotiations turned out.

Mirza Soraya, a spokeswoman for the Indonesian Chinese consortium building the rail line, declined to comment on the controversy.

“We are focusing on speeding up the construction,” she said.

Ronna Nirmala in Jakarta contributed to this report.


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