Indonesia Economic Status vs. Infrastructure
Indonesia’s fiscal landscape has faced notable challenges in the first quarter of 2025 — from ministry budget cuts to a drop in the composite stock price index, both of which are impacting infrastructure development. To navigate these hurdles, leveraging partnership for greener Indonesia is more essential than ever.
Key Drivers of Current Fiscal Landscape of Indonesia
On the global front, the US administration’s protectionist trade measures under President Donald Trump have heightened global trade uncertainties, affecting export-dependent economies like Indonesia. Moving on to the national angle, the President of Indonesia, Prabowo Subianto, has issued a Presidential Instruction to conduct a review according to the duties, functions, and authorities of each ministry to achieve efficiency in the budget expenditure in early 2025. The budget ceiling of the Ministry of Public Works as the driver of infrastructure development in Indonesia, which was originally Rp110.95 trillion, has been streamlined by Rp81.38 trillion so that the remaining total ceiling after efficiency is Rp39.57 trillion. On the other hand, significant social programs have increased fiscal expenditures, raising concerns about fiscal sustainability.
The Impact
The reduction of infrastructure spending has raised concerns about the continuity of infrastructure projects and their commitment to sustainability goals among the business sectors including constructions, material suppliers, services, and subcontractors. The budget cuts have led to uncertainty regarding the continuation of infrastructure projects throughout Indonesia, causing businesses to adopt a more cautious approach to future investments. Several local governments that had met readiness criteria for infrastructure funding may now face delays, potentially waiting years for their projects to move forward.
Government Initiatives for Partnerships
Amid fiscal challenges, leveraging partnership for greener Indonesia is a key strategy as the country forges ahead with international collaborations to sustain and expand its infrastructure development. In a recent meeting, the Deputy Minister of Public Works (PU) expressed support for enhanced cooperation with Japan to tackle climate change impacts. Currently, 10 projects valued at $1.65 billion are funded through loans from the Japan International Cooperation Agency (JICA), focusing on water resources and sanitation. Looking ahead, JICA has committed an additional $355.32 million for four key projects: improvements to the Sutami Dam, volcanic eruption risk mitigation, flood management in Jabodetabek, and preparation for the Padang-Pekanbaru Toll Road Phase 1 and 2.
Indonesia is also exploring strategic partnerships with the Asian Infrastructure Investment Bank (AIIB), with discussions underway for a $250 million loan to enhance irrigation services, supporting national development priorities. The Minister of Public Works hopes that the partnership with AIIB can continue to grow and be expanded to various regions in Indonesia, especially areas with high disaster risk levels.
Another recent act is the collaboration between the Indonesian and British governments to further sustainability by launching the MELAJU platform: A UK-Indonesia Sustainable Infrastructure Partnership. Gradually, the cooperation project platform will be used to develop innovative and sustainable infrastructure involving the public and private sectors.
What’s Next?
Greenwise Partnerships in infrastructure is an opportunity to boost both the scale and quality of infrastructure development nationwide and should be leveraged. Active participation in global forums and meetings is crucial to showcase the country’s commitment to advancing infrastructure and sustainability in an integrated, forward-thinking way. Collaboration among all stakeholders, from government bodies to private sectors, is essential to accelerate these partnerships. Ultimately, these efforts will support Indonesia’s Nationally Determined Contribution (NDC) targets, helping to significantly cut greenhouse gas emissions and contribute to the global mission of limiting temperature rise to below 1.5°C.
