The World Bank has raised concerns over the domination of state-owned enterprises (SOEs) in Indonesia’s infrastructure sector, saying the situation deters private sector investments.
With 245 infrastructure projects in the pipeline, Indonesia should have served as an attractive destination for private investors, including foreign ones, World Bank Group president Jim Yong Kim said. However, the great presence of SOEs undermines the potentials of private entities, such as conservative insurance and pension funds, reluctant to invest in those projects, he added.
Many consider SOEs to have various advantages, such as cheaper loans from state-owned banks and implicit government support and, therefore, see them as tending to earn greater profits compared to private firms.
“I’m trying to get the Japan Government Pension Investment Fund (GPIF) to invest as they were managing US$1.4 trillion,” he said at the Indonesia Infrastructure Finance Forum in Jakarta on Tuesday.
“They were worried about the low yield in Japan and would love to invest in Indonesia. However, they worried about the dominance of SOEs here.”
Kim further cited the availability of around US$40 trillion invested in bonds with negative interest rates and low yield government bonds as well as those kept in Japan, which Indonesia could try to attract.
Apart from the domination of SOEs, Kim also underlined unfavorable policies for private investors and corruption as factors that discourage private sector involvement in the country’s infrastructure projects.