HOWEVER you slice the pie, there isn't enough capital within the country for the Indonesian government to mount its ambitious US$264 billion infrastructure development programme from 2016 to 2020.
This is why the largest economy in South-east Asia is doing all it can to encourage foreign investment - from deepening its capital markets to introducing new financial instruments such as real estate investment trusts (Reits).
It is also trying to draw runaway assets back home through its tax amnesty programme. Maybank estimates that Indonesia's infrastructure capital expenditure (capex) will reach US$264 billion from 2016 to 2020 - the highest in Asean and equivalent to 30-35 per cent of the country's GDP. The most pressing needs are in power (US$91 billion), water (US$42 billion), oil refineries (US$40 billion), and roads (US$21 billion).
Of this amount, Maybank estimates that the government's budget will cover only about 29 per cent of the capex; the remaining US$190 billion requires private sector help. Most infrastructure projects in Indonesia are currently funded by the government, state-owned companies, and domestic banks.
Wilianto Ie, CEO of Maybank Kim Eng Indonesia, said in an interview on the sidelines of the recent Maybank Invest Asean conference in Jakarta that Indonesia is considered relatively open to foreign investment compared to other, neighbouring countries. Some 40-60 per cent of its equity market's daily trading value comes from foreign institutional investors.
Both the country's bond and equity markets are relatively untapped compared to other Asean markets, however. Bonds, in particular, are good for financing infrastructure because they allow project sponsors to match their financing cost with their receivables in rupiah, and match the project's long gestation period with bonds' long tenors. Fixed-rate bonds also reduce the volatility of fluctuating interest rates.
Unfortunately, Indonesia's local currency bond market stands at only 16 per cent of its GDP, and only 17 per cent of its outstanding corporate bonds (about 283 trillion rupiah, or S$29.4 billion) are issued by the infrastructure, utilities and transportation sectors. In comparison, Singapore and Malaysia's bond markets stand at 78 per cent and 97 per cent of GDP respectively.
Likewise, Indonesia's stockmarket capitalisation is just 52 per cent of GDP - a fraction of Singapore's 103 per cent and Malaysia's 86 per cent, according to data from OJK, the financial services authority of Indonesia.
At the recent conference, OJK commissioner for capital market supervision Nurhaida said the country is looking to promote Reits, among other financial instruments, to support its infrastructure development programme. "OJK has worked closely with the tax authorities and local governments to come up with the most favourable tax treatment for Reits, all the way from asset transfer tax to stamp duties," she said.
At a press conference, Taswin Zakaria, president director of Maybank Indonesia, said that the government needs to continue developing a more conducive environment and rejig regulations to entice foreign funds to enter Indonesia to expand the liquidity available for project finance.
As for other sources of funding, the government has also been working on deepening its sukuk (Islamic bond) market to offer companies an alternative to conventional financing.
While the tax amnesty programme has garnered much public attention, it has been judged as not very effective. With just four days left till its first submission deadline of Sept 30, the amount received so far has been a tiny percentage of what the state had originally hoped to collect.
As at Sept 22, Indonesia had collected collected only 36.3 trillion rupiah in penalty payments - one-fifth of the 165 trillion rupiah target - while repatriated funds had reached only 1,307 trillion rupiah, far short of the 4,000 trillion rupiah target.
Some have declared their overseas assets without repatriating them, as these assets may be locked in properties, securities or businesses. Repatriated funds incur a lower tax tariff of 2 per cent, compared to 4 per cent for declared funds.
After the Sept 30 deadline for the first submission under the tax amnesty programme, there will still be two more submission periods ending in December 2016 and March 2017, respectively, but the tax rates for later submissions will be incrementally higher.
The initial hope was that monies overseas, mostly in Singapore, would be sent home to be invested in a gamut of instruments - like government bonds, corporate bonds, time deposits and savings, mutual funds, collective investment contracts, Reits, and other property investment trusts. But it remains to be seen if such objectives will be met.
Still, Mr Wilianto said the programme will bring other benefits. "It's not only about the money; it's about the confidence and the system. This tax amnesty will bring a lot of so-called 'underground' or 'informal economy' into the formal economy, so the tax base becomes more accurate and reliable. It is going to be a lot easier for the government to plan. It is going to widen your tax base as well," he noted.
In the bigger picture, the declared assets overseas will raise the "wealth" measure of Indonesians, and other macro measures related to GDP, such as debt-to-GDP. This will hopefully lower the perceived country risk and, consequently, interest rates in Indonesia, Mr Wilianto added.
"It is a long-term structural reform. The spirit and the structural changes are more important than how much money is going to be generated back into the budget. Of course, it's nice to have the money. But it's not only about the money," he said.