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Infrastructure spending in Indonesia picking up after long delays but could miss target

Monday, September 21, 2015 - 16:30
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Infrastructure spending in Indonesia is beginning to pick up after lengthy delays, a welcome relief for President Joko Widodo's plan to jump start Southeast Asia's largest economy by building new roads, ports and bridges.

[JAKARTA] Infrastructure spending in Indonesia is beginning to pick up after lengthy delays, a welcome relief for President Joko Widodo's plan to jump start Southeast Asia's largest economy by building new roads, ports and bridges.

In the past few weeks, the government has sped up capital spending, leading to a surge in cement sales and imported capital goods and raw materials.

That has helped support shares of construction firm Adhi Karya Tbk, cement maker Semen Indonesia and other infrastructure-linked firms.

The basic industry sector, which covers building material stocks, has risen 3.6 per cent in the past month, outperforming the main index, which has fallen 2.9 per cent over the same period.

"With public spending gaining more momentum, we see the stage as being set for a strong rebound in the second half with a growth dividend coming through meaningfully in 2016," said Barclays economist Wai Ho Leong in a research note.

Bureaucratic red-tape and a lack of policy coordination hindered capital spending in the first seven months of this year, with second-quarter economic growth falling to its slowest since 2009.

The government had spent only 14 per cent of its 276 trillion rupiah (US$542.80 million) capital budget for the full-year by the end of July.

That has risen to 25 per cent in August, a near doubling of capital spending in just one month but still far off the year's goal with less than four months to go.

Annual cement sales likely increased by 15 per cent in August, the first increase since January, said Citi Research in a research note.

Stronger sales have helped lift shares of the country's largest cement maker, Semen Indonesia, by more than 30 per cent after hitting a six-year low last month.

Adhi Karya, whose shares have jumped 21 per cent over the past month, started building a light rail transit project earlier this month and has signed 7.8 trillion rupiah (US$542.80 million) in construction contracts so far this year.

"The increase in disbursement is starting to show, reflected by the growing number of contracts acquired by our company," Ki Syahgolang Permata, the firm's corporate secretary, told Reuters.

Mr Joko, who has made infrastructure development the centrepiece of his economic plan, on Monday urged companies not to delay infrastructure projects any further.

"We are far behind other big cities in the world. We shouldn't be late in making decisions," Mr Joko said at an event launching the next stage of a US$1.5 billion mass rapid transit project in Jakarta.

REUTERS