Infrastructure Development in Indonesia

Infrastructure Development in Indonesia

source Breakbulk Events & Media

edited by kcontents

One particular subject of the Indonesian economy that has been hampering Indonesia's economic and social development is the lack of quality and quantity of infrastructure. Whether it is 'hard' infrastructure (such as roads, airports and electricity supply) or 'soft' infrastructure (such as social welfare and healthcare) Indonesia seems to have a hard time pushing for structural and rapid development.

In World Economic Forum (WEF)'s Global Competitiveness Report 2015-2016, Indonesia ranks 62nd out of 140 economies in terms of infrastructure development, a mediocre ranking, and one that causes major problems. Since the era of reformation replaced Suharto's authoritarian New Order government in the late 1990s, expansion of Indonesia's infrastructure has not been able to keep up with robust economic growth that occurred after the recovery from the Asian Financial Crisis amid the lucrative commodities boom. As a consequence, Indonesia's economic growth fails to reach its full potential.

How is Infrastructure Hampering Indonesia's Economic Development?

When the state of infrastructure is weak it implies that the economy runs in a highly inefficient manner as logistics costs are high, businesses lack competitiveness (because the costs of doing business are high), and there exists a high degree of social injustice when, for example, it is difficult for part of the population to reach healthcare facilities, or, for children to reach a school.

In fact, infrastructure development and macroeconomic development go hand-in-hand (have a reciprocal relationship) because infrastructure development gives rise to economic expansion through the multiplier effect, while economic expansion gives rise to the need to enlarge existing infrastructure to absorb the larger flow of goods and people that travel across the economy. However, when existing infrastructure cannot absorb rising economic activity (and not enough new infrastructure is developed) then there occur problems, similar to blocked arteries in the human body that cause life threatening conditions.

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https://www.indonesia-investments.com/business/risks/infrastructure/item381?

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