Indonesia’s Infrastructure Problems: A Legacy From Dutch Colonialism

By webadmin on 12:04 pm Apr 25, 2011
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Idries de Vries

Recently, President Susilo Bambang Yudhoyono urged private investors to help Indonesia overcome its endemic infrastructure problems, as the central government itself does not have access to sufficient funds to do so.

These infrastructure problems are well known. Public transportation is either seriously underdeveloped or completely absent, which leaves the relatively few and poorly maintained roads and highways around the nation unable to cope with the daily volume of cars, truck and motorcycles.

Besides frequently causing a big nuisance for the average Indonesian commuter, this problem also comes at a high financial cost. For instance, according to the Presidential Working Unit for Development, Supervision and Oversight (UKP4), Jakarta alone loses around Rp 13 trillion ($1.5 billion) yearly as a result of the ever-present traffic congestion. Other studies, however, such as from the World Bank, put that figure as high as Rp 43 trillion.

Even more important is the fact that the absence of a functioning infrastructure is an important obstacle to future economic growth. It makes efficient production and trade all but impossible, thereby holding people back from investing in Indonesia. And that is why the nation’s infrastructure is so high on the government’s agenda.

The Indonesian government is regularly scorned for the nation’s infrastructure problems. And although many arguments can be presented that show the validity of these criticisms — such as that there is insufficient planning on the government side to prevent new, or deal with existing infrastructure problems, or that execution of whatever plans that do exist is often very ineffective — the truth of the matter is that the root cause of the problem lies outside of the government’s control.

Indonesia’s infrastructure problem is closely related to the era of Dutch colonialism, because the Dutch colonial administrators managed Indonesia with the explicit aim of bringing as much wealth as possible to the Netherlands. The riches were used there to finance large-scale infrastructure projects.

Scholars estimate that at the height of colonial exploitation, during the period of the so-called Cultivation System ( Cultuurstelsel or Tanam Paksa ) between 1830 and 1871, the Dutch repatriated around 1 billion Dutch guilders from Indonesia. This was enough to, among other things, dig the North Sea Canal linking Amsterdam to the North Sea and the New Waterway Canal linking Rotterdam to the North Sea. Also, the railroad from Amsterdam across the Netherlands to Germany was built using this money, as well as many other canals, railways, roads and bridges.

Over the years since, the economy of the Netherlands has benefited tremendously from this ‘Indonesian-funded’ investment. The infrastructure improvement opened the harbors of Amsterdam and Rotterdam up to large seagoing vessels coming from the North Sea and developed the railway system that enabled efficient transport between these harbors and the landlocked parts of Europe. When the industrial heart of Europe began to develop in Germany — the Ruhr region — the Dutch profited as their harbors developed into important European import and export hubs. Today the Port of Rotterdam is by far the largest harbor in Europe and one of the top ports worldwide.

The infrastructure-driven economic problems of Indonesia are closely related to the infrastructure-driven economic successes of the Netherlands. To get a sense of just how important this colonial legacy is for Indonesia’s infrastructure today, one has to calculate the purchasing power of 1 billion guilders in the 19th century. This would give an indication of what Indonesia could do in resolving its infrastructure problems today, with the money the Dutch stole during the 19th century.

An easy way to do this is by assuming the gold price of products does not change much, and then to look at the gold value of 1 billion guilders in the 19th century. At that time a guilder contained 0,6056 grams of gold. This means the 1 billion guilders had a value of 605,600 kilograms of gold. As today gold trades at around $48,500 per kilogram, the 1 billion guilders taken from Indonesia to the Netherlands between 1830 and 1871 would today be worth around $30 billion (Rp 260 trillion).

Another way to do translate the value of the amount of Indonesian losses during just this particular colonial period would be to look at the price of essential consumer goods then and now. With bread being a staple food in the Netherlands, not very much different from the role played by rice in Indonesia, it is an obvious pick. Bread in 19th century the Netherlands cost around 0.15 guilders. Today, bread in the Netherlands costs the equivalent of 4,0 guilders (in euro currency), which is around $2.50. This comparison leads to the conclusion that the 1 billion guilders moved from Indonesia to the Netherlands between 1830 and 1871 would today be worth around $36 billion.

Both methods are very conservative estimates, however. This is proven by the fact that between 1830 and 1871, money from the Dutch East Indies — as Indonesia was called — on average made up 25 percent of the total annual budget of the Dutch government. And if one were to calculate today’s purchasing power of the 1 billion guilders from the 19th century based on this statistical information, the value would jump to a staggering $3.3 trillion. The reasoning behind this is that the Dutch government budget for 2010 was approximately $325 billion and 25 percent of that for 41 years would make $3.3 trillion.

But whatever the exact value of 1 billion 19th century guilders may be today, it is clear that the Dutch committed a great crime when they built up their own infrastructure using Indonesian money, while at the same time substantially underinvesting in the infrastructure of what would become the Republic of Indonesia.

The extent to which this crime contributed to Indonesia’s current infrastructure problems can be assessed by looking at what an extra $30-40 billion would do in solving these problems. The answer is that with this kind of money Indonesia could alleviate many of today’s choke points.

As an indication, the Jakarta monorail project, that has been abandoned due to a lack of funds, was expected to cost just $500 million to complete. The Hydrogen Hi-Speed Rail Super Highway(H2RSH) that would link Cirebon to Jakarta and Soekarno-Hatta International Airport has been calculated to cost around $3 billion. And with experience indicating that it costs anywhere between $15 million to $25 million per kilometer to build new highways in Indonesia, at least 2,000 kilometers of brand-new highway could be built to link the nation’s main cities.

Perhaps Indonesia’s government should, in addition to asking the private sector for help in tackling infrastructure problems, ask the International Court of Justice to look into the possibility of making the Dutch government fulfill its moral obligation to correct a great historic wrong by compensating its former colony. This would be the most honorable solution for infrastructure problems here. And perhaps also the easiest, as the court is conveniently located in the Dutch city of The Hague.

Idries de Vries is a Jakarta-based analyst of economic and geopolitical affairs from the Netherlands.