Implementing Indonesia’s Economic Master Plan (MP3EI): Challenges, Limitations and Corridor Specific Differences pot

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Implementing Indonesia’s
Economic Master Plan (MP3EI):
Challenges, Limitations and
Corridor Specific Differences







June 2012


Prepared by Strategic Asia

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Table of Contents

The Concept of an Economic Corridor 12
Economic Corridors in Indonesia 12
Implementation Phases of the MP3EI 15
Barriers to Implementing the MP3EI 16
Public Communication and Awareness 17
Synergy with the RPJP and the RPJM 19
Regulatory Reform 21
Institutional Reform 23
Infrastructure 25
Regional Disparities 29

Human Resource Development 33
Financing and Attracting Private Sector Investment 35
Environmental Sustainability 38
Differing Perceived Opportunities and Barriers to Implementing the MP3EI at the National Level and in
the Kalimantan and Bali- Nusa Tenggara Corridors. 43
Implementation Requirements and Recommendations for the MP3EI 47
International Experience of Implementing Economic Corridors 47
A Closer Look on East-West Economic Corridor of Greater Mekong Sub-region (GMS): Turning
Infrastructure Corridors into Economic Corridors 47
The Indonesia-Malaysia-Thailand Growth Triangle 51
Roles of Stakeholders in the Implementation of the MP3EI 54
Current Structure of the KP3EI 55
Level of Preparedness 57
Sequencing 57
Recommendations for the Implementation of the MP3EI at the National Level 59
Implementation Recommendations in the Kalimantan Corridor 60
Implementation Recommendations for the Bali- Nusa Tenggara Corridor 61
Conclusions 62
REFERENCES 64
ANNEX 67

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Figures

Figure 1 - MP3EI Economic Corridor Map 11
Figure 2 - Estimated Investment Required for the Main Economic Activities of the MP3EI 14
Figure 3 - Implementation Phases of MP3EI 15
Figure 4 - Barriers to Implementing MP3EI 16
Figure 5 - Infrastructure Projects Under Construction 28
Figure 6 - Total Projects and Total Investments in the MP3EI 29
Figure 7 - Regional Inequality in Indonesia 30
Figure 8 - Indications of Investment in 6 Economic Corridors 32
Figure 9 - Factors for Doing Business in Indonesia 36
Figure 10 - Perceived Opportunities at the National Level 43
Figure 11 - Perceived Barriers to Implementation at the National Level 43
Figure 12 - Perceived Opportunities in the Kalimantan Corridor 44
Figure 13 - Perceived Barriers to Implementing the Kalimantan Corridor 44
Figure 14 - Barriers in the Kalimantan Corridor broken down by frequency of mention: 45
Figure 15 - Perceived Opportunities in the Bali- Nusa Tenggara Corridor 45
Figure 16 - Perceived Barriers to Implementing the Bali- Nusa Tenggara Corridor 46
Figure 17 - Barriers in the Bali- Nusa Tenggara Corridor broken down by frequency of mention: 46
Figure 18 - EWEC Linkages to National Development Plans 50


Table

Table 1 - The Economic Activities Promoted by the MP3EI per Corridor 13

Boxes

Box 1 - Key Points from the Low Carbon Economy Knowledge Hubs 41
Box 2 : EWEC Flagship Projects 47
Box 3 IMT-GT Five Connectivity Corridors 51










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Implementing Indonesia’s Economic Master Plan (MP3EI): Challenges, Limitations and
Corridor Specific Differences
1


Executive Summary

The Government of Indonesia announced the Master Plan for the Acceleration and Expansion of
Indonesia’s Economic Development (MP3EI) in May 2011. This has been followed by almost
constant debate surrounding the feasibility and the implementation challenges likely to be faced
by the MP3EI. The fact that such an overwhelming amount of interest has been generated about
the MP3EI shows the willingness of stakeholders to take part in realising the success of the
policy. It also demonstrates that not enough attention has been paid to implementation
mechanisms and frameworks during the design phase of the MP3EI itself.

The MP3EI is a very ambitious plan. It aims to propel Indonesia into the top ten economies and
raise per capita from US$3000 to US$15,000 by 2025. The policy rests on three main pillars:
establishing six economic corridors based on the comparative advantage of the different regions
of Indonesia; promoting connectivity within Indonesia and the ASEAN region, as well as
improving human resources and science and technology.

Implementation of the MP3EI, however, is its Achilles heel. The MP3EI document itself
dedicates a relatively short space to map out the implementation and monitoring of the policy.
This ambitious policy needs a strong implementation strategy to ensure its success.

At the national level, there are nine major barriers to the implementation of the MP3EI: a lack of
socialisation and awareness; unclear synergy with the RPJMN (Indonesia’s long term
development plan); needs for both regulatory and institutional reform; underdeveloped
infrastructure; regional disparities; a need for human resource development; a lack of available
national financing and disincentives to private investment and a perceived clash with committing
to environmental sustainability.

Barriers found for the Kalimantan and Bali- Nusa Tenggara Corridors are found to be different,
although all stemming from a general theme at the national level. As such, recommendations for
the implementation for the two regional corridors are not the same.

This indicates that each of the six Corridors will be unique in their implementation strategy.
Indeed, the MP3EI states that each corridor has its own theme based on the comparative
advantage of that region. Furthermore, implementation relies on a number of factors such as
levels of infrastructure, human resources, institutional capacity, amongst others. As such, it is
likely that the implementation experiences from one Corridor cannot be copied to another. This
suggests then, that the idea of using a pilot corridor should not be undertaken, but instead all six
corridors be implemented simultaneously. Implementing the first phase of the MP3EI should

1

The UK Foreign and Commonwealth Office in Jakarta contracted PT. Strategic Asia Indonesia between August
2011 and April 2012 to undertake a project looking at the implementation barriers, requirements and
recommendations for the MP3EI.





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occur at the same time as the implementation of increased research and planning to develop
human resources, invest in science and technology, developing basic infrastructure as well as a
regulatory and institutional reform.

General recommendations for the national level are:

The first task is to create effective on the ground awareness and familiarity with the
objectives, design and key stages of the Master Plan. At present, Government officials at
the national level overall had a much better understanding on the meaning, opportunities
and requirements for implementing the MP3EI as compared to the private sector and civil
society.

A clear set of expectations from different groups of stakeholders needs to be established,
as now there is cross over in expectations of different stakeholders- particularly between
the private sector and government officials. Increased available information for the
private sector as well as inclusive public communication are the first steps in establishing
a long term working relationship between the private sector and government to
implement the MP3EI.

A regulatory review to ensure that the MP3EI can be supported by laws and regulations

which are streamlined through the regional and national level.

MP3EI Working Units need to be established which coordinate regularly with the
national level. These groups should involve a breadth of stakeholders and their targets
and quarterly progress should be made available as public information.

Improving basic infrastructure should be seen as a national government priority in order
to attract private investment in commercial infrastructure.

An Action Plan needs to be developed on looking at the short and long term needs of
developing human resources in each of the six corridors. At the moment, it is not clear in
the MP3EI where funding is to be sourced to establish training centers and other
resources develop Indonesia’s man power. The MP3EI document lays out a breakdown
for the infrastructure budget, but there is a lack of a breakdown of a budget for human
resource development.

An Action Plan needs to be established on the strategies when moving from an
infrastructure to an economic corridor learning from the international experience.

The national PPP framework needs to be reviewed, projects need to synergize between
the national and regional level, with only feasible projects which are ready to commence
advertised. The President also needs to take the lead at the national figurehead for the
development of PPPs in Indonesia.





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A review of the financing budgeted for the eastern parts of Indonesia needs to be carried
out as eliminating regional disparities are a priority for the MP3EI but yet there is a lack
of financing in eastern Indonesia which acts as a barrier to growth and also private
investment.

An important theme in the implementation of the Kalimantan Corridor was the perceived clash
with efforts to become more environmentally sustainable. Connectivity was an important issue as
at the moment there is a lack of sharing of information between Kalimantan’s four provinces,
however this was much more of a prominent theme in the Bali- Nusa Tenggara Corridor since
this corridor aims to pull together a series of islands. Eastern Indonesia also has more prominent
issues in underdeveloped basic infrastructure and human resources, far much more than
Kalimantan. As such, special attention should be given to the Bali- Nusa Tenggara Corridor as
well as other eastern Corridors in constructing basic infrastructure with the overall aim to reduce
regional disparities.

In terms of sequencing, similar to the East- West Economic Corridor of the Greater Mekong
Delta Sub- Region, the MP3EI has dedicated the first phase of the implementation process from
2011 to 2015 as solely in infrastructure investment. The purpose behind this is to increase the
inter-corridor connectivity and set basic foundations for the second phase. The East West
Economic Corridor found relative success in the infrastructure phase, and significant increased
trade and investment flows as a result. However, difficulty was found in the move from an
infrastructure corridor to an economic corridor.

For the second phase of the MP3EI, covering the period from 2015 to 2020, attention needs to
move further down to the regional level. After infrastructure corridors are established, the
regional government should have a better awareness and ability to fulfil its roles. Increased
responsibility at the regional level for implementing MP3EI would serve as a faster method of
implementation rather than at the national level and each Corridor would be able to adapt to its
local situation easily. The MP3EI should not be bound to a one size fits all policy, but the regions
should have the capacity to implement the policy according to the different needs and abilities of

each corridor.








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Introduction

Background
The Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development
(MP3EI) is the government’s most prominent economic development policy in the last decade.
This ambitious policy aims to leapfrog Indonesia into the ten biggest economies by 2025, by
increasing GDP to US $4.5 trillion as well as by increasing GDP per capita income from US
$3000 now to US $15,000.

Under Presidential Regulation No. 32/2011, President Yudhoyono launched the MP3EI policy in
May 2011 and the policy was supported by sectoral ministries, local governments and state-
owned enterprises. The MP3EI has huge potential to develop economic growth through the
promotion of six economic corridors: the Sumatra Economic Corridor, the Java Economic
Corridor, the Kalimantan Economic Corridor, the Sulawesi Economic Corridor, the Bali- Nusa
Tenggara Economic Corridor and the Papua- Kepulauan Maluku Economic Corridor.

The MP3EI policy centres around three main strategies: to develop the six national economic
corridors, to speed up the development of human resource capacity and national science and
technology which will feed into the long term support of such accelerated economic

development.

The total investment required for the six corridors is Rp. 4,012 trillion. From this total, it is
expected that the Sumatra Corridor will receive Rp. 714 trillion (18% of total investment), the
Kalimantan Corridor will receive Rp. 945 (24% of total investment), the Java Corridor will
receive Rp. 1,290 trillion (32% of total investment), the Sulawesi Corridor will receive Rp. 309
trillion (8% of total investment), the Bali-Nusa Tenggara Corridor will receive Rp. 133 trillion
(3% of total investment) and lastly the Papua- Kepulauan Maluku Corridor will receive Rp. 622
trillion (15% of total investment).

The Master Plan identifies eight primary programs and 22 primary activities as the focus of
national development. The eight primary programs are: agriculture, mining, energy, industrial,
marine, tourism, telecommunications and the development of strategic areas. The strategic
initiative of the Master Plan is to encourage large-scale investment in 22 primary activities:
shipping, textiles, food and beverages, steel, defence equipment, palm oil, rubber, cocoa, animal
husbandry, timber, oil and gas, nickel, copper, bauxite, fisheries, tourism, food and agriculture,
the Jabodetabek area, the Sunda Straits strategic area, transportation equipment, and information
and communication technology.

Fundamental to the MP3EI policy is the importance of promoting a new way of thinking- “Not
Business as Usual”. This new ideology is to come from increased collaboration and inputs from
national government, local governments, state-owned enterprises, private sector companies and
local communities.

The Indonesian Government has limited funds to finance development through its State Budget
(APBN). According to the MP3EI, 44% of the total investment needed is expected to come from

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the private sector and state-owned enterprises. Under the MP3EI, all existing regulatory
frameworks must be evaluated, and strategic steps must be taken to revise and change
regulations in order to attract such support from investors. Incentives will be implemented on
tariffs, taxes, import duties, labor regulations, licensing and permits and land procurements. In
order to achieve these goals, the central and local governments must build a stronger link within
and beyond the centers of economic growth.

Although the policy lays out a promising plan to advance Indonesia’s economy, it has often been
noted that its Achilles heel is in the implementation stage. Others have noted that the
Government’s previous large scale development acceleration programmes in Indonesia have not
fulfilled their promises, such as the 2007 Presidential Instruction on real sector development
acceleration and the 2010 Presidential Decree on acceleration of poverty reduction.
2


The Committee on Economic Development Acceleration and Expansion of Indonesia 2011-2025
(KP3EI) is an institution established by the President of the Republic of Indonesia on May 20,
2011 to coordinate the implementation of MP3EI.

The Master Plan recognises that Indonesia must overcome a number of challenges: a failure to
achieve value-added input in the agricultural and extractive industries; a developmental gap
between western and eastern Indonesia; the lack of infrastructure support generally; a lack of
connectivity between regions; inadequate quality of human resources and rapid urbanisation.

The steps to realise the Master Plan include: bureaucratic reform, including the legislature and
judiciary, tax reform and incentives, the creation of special economic zones in each of the
corridors, improved shipping and airline capability (ports and airports) to promote connectivity,
and increased high school and vocational training to improve human resources. Many elements

in the plan are unique points of departure for Indonesia. For example, the Master Plan states that
the Government bureaucracy will support the needs of business and provide equal treatment and
fair opportunities for all businesses, Government loans will be used to finance investment instead
of routine expenditures, such as subsidies and subsidies will be targeted at the disadvantaged
rather than for goods, taxes will be on Indonesian sourced income and not worldwide income,
taxes will be based on consumption rather than value added taxes, and employment regulations
will be supportive of employers as well as employees.

Evidence Used in the Study/Data Sources
This paper highlights the key barriers to implementing the MP3EI policy and makes
recommendations for successful implementation. Using an evidence-based approach, this paper
makes reference to data collected during past meetings with stakeholders. Since this project has
mainly looked at the implementation barriers and requirements at the national level and
specifically at the Kalimantan and Bali- Nusa Tenggara Corridors, the bulk of the

2
Business Section, ‘I’m not optimistic with the MP3EI: economist’, The Jakarta Post, July 25
th
2011





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recommendations are made for national level as well as Corridor specific recommendations for
the Kalimantan and Bali- Nusa Tenggara Corridors.

Data has been collated from meetings and interviews with government officials, members of the

private sector and of civil society from all of the six Economic Corridors as outlined in the
MP3EI. PT Strategic Asia Indonesia facilitated four seminars, two at the regional level and two
at the national level in order to gather opinions from a wide range of stakeholders. A market
research company, the Polling Center, based in Jakarta, supported PT Strategic Asia Indonesia
and undertook three rounds of interviews with project stakeholders. During the length of this
project, the Strategic Asia team gathered data from a wide range of sources from across the
Indonesian archipelago.

Field trips took place in East and Central Kalimantan, Lombok, Bali, Aceh and Makassar in
order to gather area specific data needed to supplement project research, as well as to gain
support for two regional seminars which occured in Kalimantan on 6
th
October 2011 and in
Lombok on 6
th
December 2011. Both seminars addressed the specific needs of the regions; the
first addressing the Kalimantan Corridor and the second the Bali- Nusa Tenggara Corridor. In
preparation for our two regional seminars, trips were made to Central and East Kalimantan for
the first seminar and to Lombok and Bali for the second in order to meet key stakeholders,
speakers and with the BAPPEDA offices in order to secure cooperation in co-hosting these
events.

Strategic Asia undertook meetings in Jakarta in preparation for the third and fourth seminar
entitled ‘Climate Change Mitigation and the MP3EI’ and ‘Implementing the MP3EI on the
National Level’. These seminars were both two day events and took place on the 8
th
and 9
th
of
February 2012 and 14

th
and 15
th
March 2012, respectively. Apart from guests from Jakarta, both
seminars also featured one international speaker from London and included participants from
across Indonesia: Sumatra, Kalimantan, Sulawesi, Bali, Lombok and Papua.

Strategic Asia also signed a contract with an Indonesian market research company, the Polling
Center in August 2011. The Polling Center attended the Kalimantan, Lombok and the Climate
Change Mitigation and MP3EI seminars to undertake one to one meetings with participants
alongside the event. A broad range of stakeholders were interviewed, from government officials,
members of the private sector, NGOs, Universities, research organizations, and the Donor
community. A total of 18 interviews were conducted during the Kalimantan seminar and 20
additional interviews were conducted during the Lombok seminar. After the two regional
seminars, the Polling Center conducted 38 interviews in Jakarta. Details of the interviewees can
be found in the Annex of this report. During these three rounds of interviews, the Polling Center
quantified data on the awareness of the MP3EI; views on perceived opportunities coming from
the MP3EI; barriers and solutions for implementation; synergy with the RJPMN (the medium
term development plan) and roles of stakeholders.

Verbatim quotes from these stakeholders coming from interviews with the Polling Center can be
found throughout this paper separated in text boxes.




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Furthermore, focus group discussions were a large feature of this project. All four seminars were
made up of a panel sessions with presentations as well as smaller breakout discussions with

specific issues for discussion. The agendas, participant attendance lists and seminar summaries
for all four seminars are provided in the Annex for further information.

Alongside preparation for seminars, Strategic Asia staff also met with key stakeholders in Jakarta
as part of collating and consolidating research.

Extensive secondary research has also been ongoing throughout the life of this project. Data has
been collected from government resources, secondary literature and Indonesian and international
media.









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Figure 1 - MP3EI Economic Corridor Map

Source: MP3EI p. 46



The Six Economic Corridors
1. Sumatra Economic Corridor as a “Centre for Production and Processing of Natural
Resources and As Nation’s Energy Reserves”

2. Java Economic Corridor as a “Driver for National Industry and Service Provision”
3. Kalimantan Economic Corridor as a “Centre for Production and Processing of National
Mining and Energy Reserves”
4. Sulawesi Economic Corridor as a “Centre for Production and Processing of National
Agricultural, Plantation, Fishery, Oil & Gas, and Mining”
5. Bali – Nusa Tenggara Economic Corridor as a “Gateway for Tourism and National Food
Support”
6. Papua – Kepulauan Maluku Economic Corridor as a “Centre for Development of Food,
Fisheries, Energy, and National Mining








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The Concept of an Economic Corridor
The Asian Development Bank’s definitions of an Economic Corridor are as follows
3
:
1. A well-defined geographic area which includes transport arteries such as roads, rail lines,
or canals.
2. It highlights on bilateral initiatives and focuses on strategic centers particularly at border
crossings between two economies
3. It emphasizes the physical planning of the corridor and the surrounding area by focusing
on infrastructure development and optimal maximization of benefits.
Economic corridors aim to attract investment and generate economic activities in a particular

region in view of realising the economic development potential of a given region with essential
features of lower distribution costs and improved land acquisition. Physical links and logistics
facilitation are key elements towards achieving these aims. Physical connectivity between the
centres of economic growth will be significantly developed upon massive investments in
infrastructure. Moreover, improved infrastructure, partnered with cross-border cooperation
among the neighbouring countries, can accelerate the process of integrating the country’s
economic corridors into the global market. Successful implementation of economic corridors
requires strong political will with the placement of appropriate infrastructure as well as
streamlined competitive regulations to facilitate the movement of goods and people.
Economic Corridors in Indonesia
Growth centres, connectivity and infrastructure are the main building blocks of the Indonesian
Economic Corridors. Economic growth centres will be developed through industrial clusters and
special economic zones (SEZ). These economic hubs will be developed in each economic
corridor in line with the local potentials and specialisations of each region. For instance, the
MP3EI identifies Kalimantan as an energy hub, Bali as a tourism hub and Sumatra as an agro-
industry centre. These different types of economic activities need to be accompanied by
improved connectivity and infrastructures links.

To facilitate the movement of goods and services across economic corridors, connectivity
between regions should be developed to accelerate and expand economic development.
Connectivity infrastructures such as construction of transportation routes and information and
communication technology (ICT) within and across the regions will reduce transportation and
logistical costs. Infrastructure improvements in roads, seaports, airports, water, energy and
electricity, and others are also needed according to the economic activity required in the main
industrial clusters. Therefore it is crucial for these infrastructures to be of high quality if a
competitive final product is desired. In addition, the provision of the various infrastructures
across the corridors will need a pool of skilled workers who are experts for each type of
economic activity.

3
Ruth Banomyong, “Benchmarking Economic Corridors Logistics Performance: A GMS Border Corssing
Observation”, World Customs Journal




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Table 1 - The Economic Activities Promoted by the MP3EI per Corridor


Source: MP3EI p.48 and p.49





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Figure 2 - Estimated Investment Required for the Main Economic Activities of the MP3EI


Source: MP3EI p.50

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Implementation Phases of the MP3EI
Figure 3 - Implementation Phases of MP3EI

Source: MP3EI p.50

As illustrated above, Phase 1 (2011-2015) intends to focus on the implementation and
operationalisation of the MP3EI implementing committee. One of the action plans prepared is
the debottlenecking of different pending regulations, licenses, incentives and the commencement
of investment commitment. All of the pending regulations and permits at the national and
regional level must be revised to support the development of main activities related to spatial
management, man power planning, regional tax, application of communal land, mineral and coal
mining business uncertainty, simplification of business patterns in the oil and gas industry,
private sector participation in providing electricity, renewable energy, defence equipment,
railways, airports, tourism, and Public Private Partnerships (PPPs), among others. See Annex for
a detailed list of the pending laws.

Moreover, strengthening of national connectivity is a priority for Phase 1 by assigning primary
seaports and airports as international exchange centres in western and eastern Indonesia. Human
resources development, research facilities, research activities and other capacity building
activities will also be strengthened to serve as a good foundation for the first phase.

Phase 2 (2016-2020) intends to focus on the acceleration of long term infrastructure
development, increasing innovation to boost competitiveness, improvement of economic
governance in various fields and the promotion of industries that will create added value.

Phase 3 (2021-2025) will leverage on the competitive advantage of national industries globally
and high level technology adaption for future development projects. Successful implementation
of converting the infrastructure corridors into economic corridors will also take place in this
phase.

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The Action Plan, for successful implementation of the MP3EI, will be discussed later in this
report. This action plan has considered the international experience specifically from the Lower
Mekong Delta Action Plan and the Indonesia-Malaysia-Thailand Growth Triangle Action Plan.
Barriers to Implementing the MP3EI

Figure 4 - Barriers to Implementing MP3EI

Barriers to
Implementing
the MP3EI
1. Public
Communication
and Awareness
2. Unclear
Synergy with the
RJPMN
3. A Need for
Regulatory Reform
4. A need for
Institutional
Reform
5.
Underdeveloped
Infrastructure
6. Regional
Disparities
7.
Underdeveloped

Human Resources
8. Lack of
National Financing
and Disincentives
to Private
Investment
9. Clash with
Environmental
Sustainability




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1. Public Communication and Awareness
No other policy initiative has received either such a
high profile or so much attention in the entire period
following the collapse of the New Order.

However, a lack of awareness amongst key
stakeholders is a significant finding of this project.
Despite the fact that the MP3EI sets out to implement
this project in a ‘Not Business as Usual’ mindset by
involving stakeholders in a collaborative approach,
we have found that there is a disparity in awareness
and knowledge of the MP3EI amongst government
officials and members of the private sector and civil
society organizations. Notably, various levels of
awareness and knowledge were also found across

different areas of Indonesia. As expected, it was
government officials as a group who were the most
knowledgeable about the concept of the MP3EI.
Furthermore, government officials who were
interviewed in Jakarta had a better understanding of
the MP3EI than their regional counterparts.

As yet, there is no ‘virtual secretary’ or one website
dedicated to the MP3EI. This acts as a barrier to
spreading awareness on the MP3EI, as there is not
one central source of information which can inform
stakeholders about the concept and ongoing
implementation of the policy. Many members of the
private sector have raised this as a concern. Not
having access to regularly updated information, on
relevant laws and regulations in particular, would act
as a barrier to investing, as noted by many members
from the private sector.

Interviews undertaken in Kalimantan show that whilst all three categories of respondents
possessed a fairly good awareness of the MP3EI, there was a tendency for the respondents from
the government group to have a deeper awareness on the policy. Generally, most of the
participants of the Kalimantan seminar held in October 2011 were aware of the MP3EI, but some
stated that they had only researched the MP3EI following the invitation of the seminar.
Importantly, local government officials noted that they felt that the central government were
much more aware and, therefore, prepared for the implementation of the policy. Interviews
during the Lombok seminar showed that from the three categories of respondents, the private
sector and civil society had a lower level of understanding of the MP3EI than government
Verbatim Quotes from the Polling Center
in response to the question on the

socialisation of the MP3EI:

“…I feel that the MP3EI might be just
another government strategy that has
just been packaged differently…”
Private Sector, Kalimantan Seminar

“…The biggest obstacle the MP3EI faces
is the danger of conflict that will arise
during the implementation since the
actual planning of it was neither
discussed nor consulted with relevant
stakeholders and the community who
lives in the targeted areas of
development…”
Civil Society, Kalimantan Seminar

“ To be honest, I have only briefly
heard about the MP3EI and it seems to
me that it will be much focused on the
development of each respective
region ”
Private Sector, Lombok Seminar

“…It is only after attending this seminar
that I knew about the MP3EI…”
Government Official, Lombok Seminar

“ It is still a one-way relationship with
the MP3EI… Maybe later on will the

government feel it necessary to make a
special effort to socialise the MP3EI ”
Government Official, Jakarta





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officials. Although the government had a much better understanding of the MP3EI, many
answers were limited to giving the definition of the MP3EI.

Members of civil society organisations in particular stressed the need to involve the indigenous
people of Kalimantan in the implementation of the MP3EI. As mentioned in the outcomes of the
breakout sessions of the Balikpapan seminar, participants were weary of the possible rise in
tensions and resistance from indigenous peoples during development policy implementation like
the MP3EI. Similarly during the Lombok seminar, one participant from Kupang University noted
that the local customs and traditions of groups in Nusa Tenggara Timur must be respected and
involved in making economic development plans, otherwise the government runs the risk of
marginalising these groups, which could lead to social conflict. During the National Level
Seminar in Jakarta, Dr. Deddy Hadriyanto from Mulawarman University raised the same
concern. Bapak Deddy stated that the use of traditional customary law is still very strong
amongst many groups, such as the Sasak people in West Nusa Tenggara. As such, there may be
potential tension if drastic economic development does not respect the rights of such groups. It is
vital, therefore that effort is made to discuss with all groups of society about such large and
important plans like the MP3EI.

Furthermore, under the KP3EI (the Commission on the Acceleration and Expansion of
Indonesia’s economic growth) the organisational structures set up for the implementation of the

Kalimantan and Bali- Nusa Tenggara Corridors show that the majority of the people involved are
government officials. The President, Governors, Mayors, Para Walikota and Ministers have been
allocated as main stakeholders in the MP3EI Implementation Task Teams and Secretariat.
Organisational diagrams to demonstrate these can be found in the ‘Action Plan’ section of this
report.
4


Economist Fadhil Hasan has argued that the MP3EI has been prepared as a top-down Master
Plan, by the centre for the regions and that there are still many regions that are sceptical to the
MP3EI plan. "In order for the regions to have a sense of ownership over MP3EI, there should be
further socialisation to the regions. Moreover, so far, it is the governors that have been involved
in the discussions, not the regents, who have the autonomous authority," he has stated.
5


Ultimately, involving all stakeholders is the only way to hear the views of the people who the
policy will affect. Such socialisation is necessary to achieve implementing a policy which can
benefit as many as possible, which essentially is the core aim of the MP3EI.

4
AusAID Indonesia Infrastructure Initiative, as taken from Kompas Newsaper, 9
th
June 2011
5
AusAid Indonesia Infrastructure Initiative, as taken from Kompas Newspaper, 9
th
June 2011

Page 19 of 87

2. Synergy with the RPJP and the
RPJM

Law No. 25/2004 regarding the National
Development Planning System mandated the
integration of Indonesia’s long, medium term
and annual development plans. This also
indicates that the Law acts as a legal umbrella
for the implementation of development plans in
order to guarantee the achievement of the
country’s goals.

The National Long Term Development Plan
(RPJPN) 2005-2025 has become the basis for
development programs for a period of 20 years
commencing from 2005 to 2025. In addition,
RPJPN 2005-2025 also serves as a guideline for
the preparation of the National Medium Term
Development Plan (RPJMN) which is a
development program 5 years in length. The
question that arises here is to what extent does
the MP3EI synergise with the RPJPN and the
RPJMN?
6

The majority of spokespersons in the national
media have expressed a positive attitude
towards the synergy of the policies. For
example, Wahyu Utomo, the head of MP3EI
integration programme at the Office of the
Coordinating Ministry of Economic Affairs at a
conference in Yogyakarta stated that the MP3EI
programme is complementary to the National
Medium-Term Program Plan (RPJMN).
7

Similarly, the Provincial Secretary of Nusa
Tenggara Barat delivered a welcoming speech
at the Lombok Seminar which expressed the
optimism that both sets of policies are aligned.
Dr. Ir. Max H. Pohan, CES, MA, Deputy
Minister for Regional Development and Local
Autonomy Affairs of National Development
Planning, BAPPENAS has stated that the two

6
National Connectivity 2011 Special Edition, Sustaining Partnership, “The Connectivity of Six Economic Corridors”
7
Wahyu Utomo speaking at MEP UGM, Yogyakarta, 23
rd
December 2011.
Verbatim Quotes from the Polling Center in
response to the question on the synergy among
the RPJP, RPJMN, and MP3EI:

“ It is synergised because the RPJPN is more
on the general approach, but the MP3EI is more
focused on the national and regional economy
with all its pre-requisites to achieve economic
growth and push the economic growth with
various conditions. In this case, the regulations,
mindset of the people, and institutionalisation
should be right …”
Government Official, Kalimantan Seminar

“ It is synergized with two considerations (i)
fairness in distribution of funds for each
corridor (ii) commitment of local and central
government ”
Civil Society, Kalimantan Seminar

“ The MP3EI emphasises more the role of the
private sector in its implementation whereas the
RPJPN focuses more on the development
activities purely funded by the government…”
Government Official, Lombok Seminar

“…The MP3EI is the best amongst the existing
development plans since it basically focuses on
a long term national development plan that can
only be implemented in accordance with the
government’s capacity…”
Private Sector, Lombok Seminar

“ To be honest, I do not know the details of the

RPJPN and the MP3EI ”
Private Sector, Lombok Seminar

“…Although not yet quite obvious, the
synergies should be found since there are
probably several components of the RPJPN that
is similar to that of the MP3EI ”
Government Official, Jakarta

” At the very least they should have a link.
They can probably complement each other with
regard to developmental support. As part of a
business society, I expect a synergy between the
MP3EI and RPJPN. The important thing is that
they don’t overlap or veer off the course ”
Private Sector, Jakarta








Page 20 of 87

policies are complementary but that their difference lies in their implementation: the MP3EI
promotes the private sector as the main actors, whereas under the RPJPN, the government is the
main actor for implementation. The reason for the promotion of the private sector as the main
actor for implementing the MP3EI is because a large proportion of the financing for the projects

is expected to come from the private sector.

Most of the stakeholders interviewed by the Polling Center throughout this project also stated
that they believed that the two types of policy can synergise, since they are both based on similar
founding principles.

Overall, participants from the Kalimantan Seminar had the view that the MP3EI’s vision and
mission are aligned with the RPJPN. A few participants viewed the MP3EI as a part of RPJPN,
due to its coverage areas (divided into corridors); however, since its field (MP3EI is primarily
economically focused) is different from RPJPN’s, therefore, the implementation of the MP3EI’s
was viewed as different from the RPJPN. However, the Polling Center also found that such
synergy can only occur if supported by a number of conditions including: intensive commitment
and communication between the central and local government, aligned policies between the
central and local government and zero-deviation from the implementation actors of MP3EI.

Participants from the Lombok Seminar on the whole had the view that the two programmes can
be synergised because they viewed the MP3EI as an elaboration of the RPJPN, however they had
the view that the MP3EI is focused on developing infrastructure, while the RPJPN’s scope is
broader.

Government officials in Jakarta who were interviewed by the Polling Center had an
understanding of the differences and similarities between the RPJPN and the MP3EI. However,
the majority of respondents were not able to say whether the MP3EI would support the RPJPN or
vice versa.

Despite the fact that there is generally a good feeling that the two programmes can be aligned, it
must be taken into the account that the previous section of this paper highlighted the fact that a
majority of stakeholders are under informed about the MP3EI. Therefore it can be argued that
their knowledge of the ability of the MP3EI to synergise with the RPJPN and RPJMN is limited.

Furthermore, the process to assign stakeholders to implement the MP3EI is still under process, so
there is not a clear policy as yet on how the tasks to implement the RPJPM, RPJMN and the
MP3EI will be separated or merged.








Page 21 of 87

3. Regulatory Reform
Being the centre of all structural reforms, regulatory
reform is a vital component of the first phase (2011-
2015) of the Master Plan. The first phase of the MP3EI
aims to:

At the national level: re-evaluate cross sector
regulations and restructure permit applications
related to spatial management, labour, taxation and
the ease of capital investments
8
; and
At the local level: review regulations and permits
concerning the mineral and coal, forestry and
transportation sectors as well as basic infrastructure.
9

For investments in infrastructure to occur, the MP3EI
recognises that a number of regulations need to be
removed, aligned or reviewed in at least seven national
laws, seven government regulations, five presidential
regulations, presidential decrees, presidential
instructions, nine ministerial regulations and a number
of local regulations and permits.
10
The Annex contains
a list of these proposed changes. So far, twenty seven
regulations have been completed, eleven regulations are
being revised, and eight regulations are to be revised.
11


Banking on large private sector investments means that the Indonesian government will need to
create a more favourable and conducive environment that can win the trust of the private sector
through orderly regulations, fewer risks for misinterpretation, increased trust and the utmost
participation from investors in this process. The main problem is that Indonesia currently does
not have an independent regulatory review agency or an implemented Regulatory Impact
Analysis. Horizontal and vertical inconsistencies and overlapping laws and regulations remain
major issues that upset domestic and regional investment climate as well as hurdle infrastructure
projects.

Findings from the Polling Center data show that constraints could arise when the concept of
MP3EI is applied on the ground considering the current regulations and policies as well as
worries about overlapping government policies. For example, regulations and political parties
which change frequently in line with changes in the political leadership represent an obstacle

8

MP3EI 2011-2025
9
MP3EI 2011-2025
10
Asia Pacific Economic Cooperation, 2011, “Indonesia’s Structural Reform Priorities”, Residential Training
Workshop on Structural Reform Singapore
11
From a presentation given by Dr. Ir. Dedy S Priatna, MSc, Deputy for Infrastructure Affairs, Bappenas during the
UK FCO Strategic Asia ‘Implementing the MP3EI on the National Level’ Seminar, Jakarta, 14
th
March 2012.
Verbatim Quotes from the Polling
Center in response to the question on
the government regulations:

“ The biggest barrier that every
investor talks about is the lack of
regulations and standardised
issues ”
Private Sector, Kalimantan Seminar

“ The government always restricts
the flexibility of the private sector;
there is not even a distinction made
between ownership and contracts even
though the government is in
cooperation with the private sector.
This is the biggest obstacle faced at
the moment Current regulations
must be reviewed to stimulate the

private sector’s work and must be
backed up by the law ”
Government Official, Jakarta Seminar







Page 22 of 87

much lamented by business people. In light of this, it is necessary that all policy-makers and the
country’s legislative body have a clear understanding and strong commitment to adhere to the
principles of the MP3EI and RPJPN in making any further or revising policies and regulations.
Concerns from civil society about information relating to environmental regulations, the freeing
up of land, taxation, import duties, and tenders were also present. Members of the private sector
and civil society stated that they wanted transparent access to information and regulations related
to the programme. The private sector also expressed that they desired information on new
policies or changes to existing rules in both the national and regional level. The private sector
also felt that it was vital that such rules and regulations be amended, since the current state of
inconsistent policy from province to province creates a barrier for investors. Increased
consistency in policy and available up to date information on policy changes will make it easier
for private sector investors to easily assess the viability of investments and act quickly when they
see an investment opportunity. Moreover, members of the private sector and civil society are
both aware of the need for clear and consistent regulations in order to get rid of investor doubts
since these regulations would also affect the business players on their business expansion
activities while keeping up to local traditions and customs.

Delay of Land Acquisition Enactment

Despite the passing of the land acquisition bill, the parliament has postponed the issuance of its
presidential regulation
12
. Although the government intended to issue the regulation on February
2012, it could not push through since the draft regulation submitted by the National Land
Agency (BPN) still requires further discussion and clarification.
13
The issuance of the
presidential regulation on the Land Acquisition is expected to be finished within six months
since the passing of the bill, which is June 2012. This has resulted in a prolonged process of
passing a law which many see as a progressive instrument for improving the country’s physical
infrastructure.

To remove the reluctance of the private sector to take part on the Public Private Partnerships
(PPP) programs, the finalisation of the Land Acquisition Law and Spatial Planning Law (RTRW)
are essential in realising the desired huge private sector participation in infrastructure projects
and in allowing the progress of the MP3EI to move forward. Our findings from the Polling
Center reports further implies that until this Law is passed and fully implemented, there remains
bottleneck issues and confusion at the local level as to what land would be used for business
pursuits, mainly in oil and gas, coal mining, and what land needs to be protected as part of the
President’s commitment to reduce greenhouse gases by 26% in 2025.

Enactment of Tax Holiday Regulation
In August 2011, the most anticipated tax holiday regulation (Minister of Finance Regulation No.
130/PMK.011/2011) was enacted to provide two types of tax facility, namely (i) corporate
income tax exemption and (ii) corporate income tax deduction. An income tax exemption for
five to ten years will be granted to businesses in “pioneering industries” starting from the year
tax of the corporate taxpayer’s production. Issuance of this regulation is expected to boost

12

Jakarta Post, “Enactment of land acquisition law delayed again”, 14
th
March 2012
13
Jakarta Post, “Enactment of land acquisition law delayed again”, 14
th
March 2012




Page 23 of 87

investments in infrastructure, attract increased numbers of foreign investors, and ramp-up
resource-based manufacturing industries.

One of the worth mentioning stipulations under the Tax Holiday Regulation is the provision that
administers the possibility to prolong the exemption or deduction of corporate income tax. The
provision entails two elements to be regarded which are the preservation of national competition
and an evaluation of the strategic value of a particular business.
14
The lack of clarity in terms of
explaining when or how national competition needs to be maintained or the limitations of
understanding the strategic value of a particular business may cause various interpretations of
this stipulation or provision. Since multiple interpretations of this provision may lead to
uncertainty and ambiguity, the Indonesian government should clarify these provisions to
effectively implement the goals of the Tax Holiday Regulation.

Infrastructure Bonds
To help finance the needed infrastructure projects, the national government is preparing to issue

infrastructure bonds. Such bonds should immediately be issued in order to make plans to
accelerate infrastructure development a reality. By providing a government guarantee, bonds
would attract investors.
15
Directorate General of Debt Management Rahmat Waluyanto recently
announced that such infrastructure bonds will not be issued until February or March 2012.
16


4. Institutional Reform
Many stakeholders throughout this project argued that a large barrier to the implementation of
the MP3EI lies in the poor capacity of institutions, especially at the regional level; corruption and
a mismatch of communication and information between the national and regional level.

Corruption
Post ‘Big Bang’ decentralisation in 2001, many scholars have argued that corruption has actually
increased as national control over the regional government has decreased.
17
Indeed, a year after
regional autonomy entered into force, a wave of corruption cases swept across Indonesia’s newly
empowered regional parliaments. Commencing with the most storied case in West Sumatra in
2002, other regions followed soon thereafter – South East Sulawesi, West Kalimantan and
Lampung. Virtually all regions saw allegations of corruption emerge. In 2006, there were 265
corruption cases involving local legislative bodies with almost 1,000 suspects handled by
prosecutorial offices across Indonesia.

14
SSEK Law firm website, “ 2011 Indonesian Law Review on Tax Holiday”, Accessed on 2
nd
April 2012

15
Investor Daily, 28 November 2011, “WITHOUT EXTRAORDINARY BUDGET, MP3EI ONLY A DREAM:
Infrastructure Bonds to be Issued Soon”, By Esther Nuky
16
Govt to launch global bonds in February 2012 Oleh Agust Supriadi December 19, 2011
17
Taufik Rinaldi, Marini Purnomo and Dewi Damayanti, ‘Memerangi Korupsi di Indonesia Yang Terdedentralisasi’
World Bank, May 2007




Page 24 of 87

However, recent years have seen corruption on the
decline. This could be due in part to increased
freedom in the media following the end of the New
Order which has encouraged public comment and
transparency in fighting corruption. Indeed,
President Susilo Bambang Yudhoyono has
reaffirmed that his administration has zero
tolerance on corruption. He noted that “the
Corruption Eradication Commission has been
prolific in their investigations of graft, with notable
success since its inception.”
18


The international community is yet to catch up on
domestic progress on and corruption is still seen as

a problem in Indonesia. Indeed, Mr. Jonathan
Mantle, an international expert from London who
spoke at the National Level seminar, Jakarta, on
March 14
th
2012 noted that from the international
perspective, Indonesia’s reputation for corruption is
not investable. In 2011, Indonesia was ranked at
3.0 on Transparency International’s Corruption
Perception Index, rising from 2.8 in both 2010 and
2009.
19
Corruption becomes a barrier since the
MP3EI relies on such large amounts of private
sector investment, including foreign investment.


Coordination between the Regional and National
Government
Members of the Private Sector who were
interviewed during the ‘Climate Change Mitigation
and the MP3EI’ seminar noted that the
implementation of the MP3EI is constrained by a
lack of coordination between central and local
government, especially concerning overlapping
laws as regulations as discussed in the last section. Participants from the private sector who were
interviewed at the Kalimantan Seminar also argued that they receive different information on
laws and practices at the regional and national level, and thus this is confusing and, as a result, is
a deterrent to investing. As already discussed, a lack of awareness at the local government is
currently a barrier to implementing the MP3EI. This stems from a lack of an inclusive policy to

share data and plans between the national and regional government. David Ray, Director of the
Indonesia Infrastructure Initiative (IndII), an AusAID-funded facility to promote economic

18
President Susilo Bambang Yudhoyono, in The Oxford Business Group, Indonesia edition March 2012, p 19
19
Corruption Perception Index, Transparency International, 2011. Where 10 equals a very low level of perceived
corruption and 0 equals a very high perceived level of corruption.
Verbatim Quotes from the Polling Center in
response to the question on the
coordination between the regional and
national government:

“ The local government is unprepared.
The implementation at the local level is not
easy since the community should also be
taken into account. Aside from that, the
RPJMN and the MP3EI should also be
synchronized…”
Government Official, Kalimantan Seminar

“ There is an obstacle on the
coordination between the central and the
regional governments because I haven’t
seen proper coordination between the
two…”
Private Sector, Jakarta

“…an overlapping of authority and
stipulations has happened to an extent, as

well as a lack of clarity as to the
developmental priorities themselves. This
could continue unless the regional
governments will be cooperative ”
Private Sector, Jakarta

“…There is a lack of synchronization
between the centre and the regions. What’s
more the spirit of autonomy in the regions
brings its own obstacles. Also there have
been clashes with communities over land
disputes which have yet to be resolved –
also national planning tends to overlap…”
Civil Society, Jakarta




Page 25 of 87

growth through improvements in both the quality and quantity of Infrastructure in Indonesia,
particularly in urban areas has spoke about the lack of coordination between the national and
regional level. He has stated that central to the findings of Indll’s first phase is that institutional
problems, rather than resource constraints, are the primary reason for infrastructure failures.
20


Change in Mindset
Throughout the project, many stakeholders have emphasised for the need of a ‘change in
mindset’ at the national and regional level in order for each region to synergise commitment

from all levels of government. Indeed, the MP3EI needs the backing of political will from all
echelons of government. However, implementing this is not easy and there is no one fixed policy
to implement such change.

5. Infrastructure
The national government has shown its commitment
to overcoming infrastructure challenges in the
MP3EI as well as in the current medium term
development plan (RPJMN) for 2010-2014.

Deputy for Facilities and Infrastructures of
Bappenas, Dedy Supriadi Priatna, has estimated that
the investment needed to implement the six
Economic Corridors reach the magnitude of Rp
4,012 trillion. Of that amount, about 43 percent, or
Rp 1,725 trillion, is needed for infrastructure
development. Meanwhile, the government's
contribution is only about 10 percent in the form of
basic infrastructures, such as roads, ports, airports,
railway network, and power plants. Private
companies and state-owned enterprises are expected
to play a major role to meet these investment needs.

Poor Infrastructure Prevents Economic Growth
The current poor quality of infrastructure is one of
the main factors preventing Indonesia’s economy
from growing at its potential rate of 8 percent.
Inadequate infrastructure also results in high
inflation compared to most of Indonesia’s peers in
South East Asia. Infrastructure development has

been slow in the past decade and has relied heavily
on government spending. The government has thus
far not allocated sufficient funding for infrastructure

20
AusAID Indll
Verbatim Quotes from the Polling Center
in response to the question on the
provision of infrastructure:

“…To improve the qualities of
infrastructure and human resources, we
have to educate our human resources
properly. They should participate in
activities such as internship, or
educational training to increase their
knowledge and improve their skills so
that when investments come, they are not
only workers, but they can also be
individuals that we can form
partnerships with ”
Government Official, Kalimantan
Seminar

“…The infrastructure has two types:
basic and social. Basic infrastructure
includes the roads, ports, and bridges.
Social infrastructure includes the
Indonesian language, institutions, and
regulations ”

Private Sector, Lombok Seminar

“ There must be synergy between the
MP3EI and RPJPN. MP3EI is oriented
towards infrastructure while RPJPN
generally has both physical and non-
physical aspects ”
Government Official, Jakarta