Jakarta, IO – Many classical economists argue that the production of goods will automatically generate its own demand. This is known as Say’s law, or the law of markets. The theory claims that industries will not lose money as long as they continue to produce goods or services. So, even if there is turmoil in the economy, production will be encouraged to continue as usual.
However, at the time of the Great Depression Keynes argued that the amount of supply should be adjusted to existing demand. Industry must measure demand to earn maximum profit. Infrastructure development is no exception, as much is often built which is not in line with public demand. In the 1930s, many companies went out of business due to the abundance of goods or services but very weak demand, where the amount of money in circulation in the United States decreased dramatically.
Therefore, companies now need to consider Keynes’s argument in managing production policies. This includes state-run projects or government-private partnerships. It is assumed that infrastructure projects, from airports, airport trains, to highspeed trains will be able to create their own demand and the companies building them will not lose money. This statement can be easily countered with the facts that many transportation infrastructure projects are now abandoned.
Moreover, the funds disbursed for several infrastructure projects during President Joko Widodo administration have proved enormous. One year before Joko Widodo took office, Indonesia’s infrastructure budget was only Rp154.7 trillion or 8.24 percent of total spending. In his first year in office, President Joko Widodo increased it to Rp256.1 trillion, 12.91 percent of the total Rp1,984.15 trillion spending at that time. In 2017, this jumped by 41.66 percent to Rp381.2 trillion, 17.87 percent of total spending.
Between 2019 and 2020, the proportion decreased to 16.01 percent and 10.26 percent, respectively. In 2020, understandably, most of the allocation of infrastructure spending was diverted to containing the Covid-19 pandemic. Infrastructure construction activities went into a lull as Covid control measures large-scale social restriction program (PSBB) and public activity restrictions (PPKM) were implemented. At that time, the construction sector contracted by 3.26 percent.
In 2021, the infrastructure acceleration project was enacted, by increasing the allocation by 48.49 percent. The infrastructure budget reached Rp417.4 trillion or 14.98 percent of the total budget. The infrastructure budget in 2021 is the highest during President Joko Widodo’s tenure. In 2022, the infrastructure budget will hit Rp365.8 trillion. (GRAPHIC 1)
Notes of infrastructure development
We must recognize how the extensive infrastructure construction carried out throughout President Joko Widodo’s two terms was able to convert non-productive budgets into productive ones. However, despite having an excellent track record, difficulties still arise. One of them is the initiative for building transportation infrastructure, which is still short in demand to this day.
In the author’s previous article, in mid-April 2022 in the same publication, the author mentioned that there were several infrastructure projects that have arguably failed. One example is the Kertajati Airport in Majalengka Regency, West Java. Completed in 2018, the airport is still largely deserted. During the height of the pandemic in 2020 it witnessed a 66.67 percent plunge in the number of arrivals and 66.81 percent in departures. Even before the pandemic, the number of passengers using the airport was sparse.
The airport, which costed Rp4.9 trillion, is now largely devoid of passengers, and only schedules several flights. It was even turned into an aircraft repair and maintenance facility.
A similar fate befell the New Yogyakarta International Airport (NYIA) which cost Rp10.5 trillion. In 2021, the management set a target to welcome 10 million passengers, but the realization was mere 10 percent. The pandemic has rendered it largely empty.
It’s the same story with railway infrastructure. The Palembang light rail transit (LRT) and Soekarno Hatta International Airport (SHIA) rail link are still far from reaching their initial projections. This despite them costing a hefty amount of investment: Rp12.5 trillion for Palembang LRT and Rp24.5 trillion for the SHIA rail link.