Abstract
This paper analyses the performance and appropriateness of the Indonesian government’s ‘good governance’ institutional reform aimed at stimulating infrastructure construction. During the 15 years after the 1997 Asian financial crisis, the government attempted to strengthen formal institutions with the goal of improving public investment efficiency and attracting private investors. By analysing policies in the construction industry in terms of company registration, procurement and state enterprises, the paper finds that the outcome was far from what was expected by technocratic-bureaucratic reform promoters as interest groups frequently succeeded in capturing the new institutional system. This paper then challenges the dominant narrative that overwhelmingly blames incomplete institutional reform for Indonesia’s slow infrastructure construction. Given the inherent market failure and political challenges in institutional reform, the paper argues that passive developmentalist policies, which resulted in conflictual state–business relations and insufficient public investment, were a prime cause that then set the stage for the emergence of state-led infrastructure development strategy from the mid-2010s.
Highlights
Indonesia’s infrastructure development accelerated during the second half of the 2010s
This paper argues that imitating the regulatory state, desirable in the longterm, was challenging in implementation and insufficient for stimulating infrastructure construction in the context of a country with severe market failures and young democratic institutions
This paper suggests that a primary reason for slow infrastructure construction was a lack of activist-type developmentalist policies
Summary
Indonesia’s infrastructure development accelerated during the second half of the 2010s. Visible outcomes (Guild, 2019; McCawley, 2019; Ray and Ing, 2016). Projects such as linking trans-Java toll-roads, expanding trans-Sumatra toll-roads, constructing inter-urban railways and the Jakarta-Bandung high speed railways, and building ports and airports have made notable progress, though these projects have not been without delays (Sekretariat Kabinet Republik Indonesia, 2018). The central government’s capital spending expanded, whereas fuel subsidies shrunk. For the first time in a decade during which comparable data is available, capital spending became larger than fuel subsidies in 2015 (Central Bank of Indonesia, n.d.). In 2019, the final year of Jokowi’s first term, the total budget allocation for infrastructure was four times larger than fuel subsidies (Kementerian Keuangan, 2019)
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