The state, infrastructure and economic growth in Jokowi's first term

Abstract

When he took office in 2014, President Jokowi made infrastructure development the cornerstone of his economic agenda. At the time there were serious questions about whether Indonesia would be able to plan and implement large-scale infrastructure projects which historically have often been slowed down by issues related to land acquisition, financing and regulatory uncertainty. This dissertation uses mixed methods, including econometric modelling and qualitative case studies, to inductively study the process by which Jokowi carried out his infrastructure agenda in the transportation and energy sectors. The principal finding is that in order to compensate for an unreliable regulatory environment and propensity for market failures, there has been a recentralization of state power under Jokowi, with the state equipping itself with additional legal and administrative authorities in order to expedite nationally strategic projects. Critically important has been the use of a new legal tool, Law No 2 of 2012 on Land Acquisition, which has massively sped up the process of compulsory land acquisition. The primary agents of Jokowi's infrastructure push have been SOEs, which have begun taking on large amounts of debt in order to finance major toll road, airport and power plant projects. Significantly, much of this debt is denominated in rupiah and many of the SOEs, particularly in the toll road and airport sectors, enjoy healthy monopoly rents. The econometric data also shows a strong positive correlation between the growth of SOE assets and fixed capital formation which, along with household consumption, has been one of the primary engines of GDP growth during Jokowi's first term. This suggests that the state-led infrastructure push has been a significant factor in keeping GDP growth steady at 5%, and the dissertation will drill down into more detail on the specific mechanisms by which this has been accomplished.