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Indonesia. Indonesia can outpace expected growth if it accelerates infrastructure development, improves job opportunities, cuts subsidies and tackles corruption and red tape, the Asian Development Bank says.

A report released on Tuesday attempts to diagnose key obstacles hampering Indonesia’s growth.

The report was prepared by the ADB, the International Labor Organization and the Islamic Development Bank.

The government expects the economy to grow 6 percent this year, much faster than last year’s  4.5 percent, banking on strong domestic consumption, increasing investment and recovering exports.

Speaking at the report’s release, ADB’s senior economist for Indonesia, Edimon Ginting, said he expected the economy could grow 6.5 percent this year.

However, with appropriate government policies, the economy could actually grow up to 8 percent in the next two years.

“The infrastructure sector is critical as it harbors huge employment for Indonesians. But in order to stimulate the sector, the working class has to be properly educated,” Edimon said.

Infrastructure concerns make up much of the study’s attention.

Indonesia, according to the report, “has one of the lowest road densities among major economies in Southeast Asia, both per 100 people and per square kilometer. The length of paved roads per 100 people is also one of the lowest in the region. Moreover, about 36 percent of the road network was reported damaged or severely damaged in 2007.”

The study also criticizes Indonesia’s air travel sector, saying that recent expansions in the sector have not been accompanied by adequate investment in related infrastructure, resulting in overcrowded terminals and non-compliance with international flight-safety standards.

Also speaking at the release, Muhammad Ehsan Khan, ADB’s principal economist, pointed to Indonesia’s rail network — which is limited to Java and Sumatra, and is mainly single track — as a major point of inefficiency.

Kahn suggested the government tackle infrastructure problems by promoting public-private cooperation when it came to building projects.

On the subject of bureaucratic problems, the study offers more sobering conclusions: “Corruption and low government effectiveness, in particular, are reducing the developmental impact of public-sector investment and adding to investors’ costs of doing business.”

Indonesia’s poor government effectiveness compares unfavorably with other major Southeast Asian economies, according to the study.

“The World Bank Governance Indicators suggest that the country’s government effectiveness plummeted between 1996 and 1998 and declined again with the introduction of decentralization, though it has been improving steadily since 2002,” it says.

Addressing education, Khan said that fixing the education system, especially in rural areas like Kalimantan, Papua and Maluku, was vital to improving access to job opportunities.

“Raising the standard of the curriculum in these areas and providing incentives for teachers to work in these rural areas are the key factors in improving Indonesia’s education sector,” he said.

Edimon pointed out that 51 percent of the Indonesian workforce had only an elementary education.

Echoing the study’s criticism of subsidies, Khan suggested that Indonesia gradually abolish fuel subsidies and allocate the freed funds to help those on low incomes.

“The government should create subsidies that directly hit their target — the poor people,” he said.

Khan said the fuel subsidy did not benefit the poor because everyone was entitled to it.

He also encouraged the government to stop following policies that promoted carbon emissions.

In the revised 2010 state budget, the government has allocated Rp 57.46 trillion ($6.43 billion) for the fuel subsidy alone.

Speaking to the Jakarta Globe, National Development Planning Agency (Bappenas) deputy minister Lukita Dinarsyah Tuwo indicated that the government intended to better target subsidies.

He pointed to the government’s decision in June to exempt poor Indonesians, who make up the bulk of the population, from the electricity rate rise as one example of the efforts.

Some users have had to pay as much as 18 percent more for their electricity as a result of the tariff increase