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The Indonesian Dreams become Asian Tiger

Indonesian President Susilo Bambang Yudhoyono outlined plans to lift the country's growth rate to a level on par with emerging-market superstars like China, even as the country faces criticism from some economists who believe it is failing to reach its economic potential.

In a major speech on Friday to the nation, he outlined what he called a "master plan" to boost investment and lower government barriers to growth, which some analysts say have kept Indonesia from rising to the ranks of the world's most dynamic emerging markets.

The plan would push annual economic growth in the world's fourth-most populous country after China, India and the U.S. to between 8% and 9%, he said. Indonesia's gross domestic product climbed 6.1% last year and economists expect it to clock another 6.5% in growth this year.

"With strong economic growth, we will reduce poverty and unemployment rates," he said in the televised speech Friday. "It is impossible to achieve this by sticking to business as usual."

Tatan Syuflana/Associated Press 
Indonesian President Susilo Bambang Yudhoyono delivered a a speech during the opening ceremony of a ministerial conference of the Non-Aligned Movement in Nusa Dua, Bali, Indonesia, Wednesday, May 25, 2011. 

Mr. Yudhoyono's plan attempts to focus public and private sector money on building industry and infrastructure in six regions across the archipelago. He first unveiled elements of the big investment push last year but revealed many of the details for the first time on Friday. Local and foreign companies are expected to invest up to $465 billion over the next 14 years in these regions, which are expected to be akin to special economic zones where the government will pour in its own money and make it easier to invest.

Economists said that while the Indonesian economy is chugging along at a healthy rate, it continues to suffer from massive gaps in infrastructure and slow decision-making processes that prevent it from growing more quickly. Although investors widely credit Mr. Yudhoyono for bringing stability and nurturing the country's vibrant democracy since taking office in 2004, some believe his reform agenda has bogged down in more recent years, leaving the country with problems it must resolve if it wants to continue to be mentioned in the same breath as the high-growth nations of Brazil, Russia, India and China.

"Everyone wants to be like China. It's not going to happen" in Indonesia, said Wilianto Ie, the Jakarta-based head of equity research at Nomura Indonesia. "We believe that infrastructure is one of the keys and Indonesia is starting to hit the bottlenecks. "

The country's roads are clogged with traffic; its ports and airports are overcrowded and as much as a third of its citizens have to deal with power outages. Shipping a container within Indonesia from Jakarta to West Sumatra, for example, costs more than four times the amount it takes to send the same container from Jakarta to Singapore, according to a research report from Morgan Stanley this month.

The country only spent the equivalent of around 3.9% of its GDP on infrastructure in 2009, Morgan Stanley estimates, well below the 10.4% of GDP spent by China and the 7.5% of GDP spent by India around the same time.

Indonesia's minister of national development planning, Armida Alisjahbana, told reporters Friday that the government will allocate around $64 billion to build roads, railways, seaports, telecommunication and energy projects through 2015. Ms. Alisjahbana said private companies are expected to invest an additional $35 billion in these sectors.

Projects planned for the six growth centers, meanwhile, include a new toll road to the country's busiest seaport in Jakarta, a $220 million expansion of the Bali's international airport, a palm-oil industrial center in northern Sumatra, and up to $6 billion in spending to build a steel plant in Banten with the aid of South Korean steel maker Posco.

The country's government has repeatedly promised to invest more, though, only to see projects bog down in bureaucratic delays and other problems. Some political and economic analysts worry that Mr. Yudhoyono, who has a reputation for being conflict-averse, won't be able to bully national and local politicians and bureaucrats into pushing through complicated but important reforms, such as reducing gasoline subsidies, lowering regional government levies and taxes, and clarifying rules for buying land for government projects. Optimists are hoping his government can push through a long delayed land-acquisition bill by the end of this year.

Mr. Yudhoyono, for his part, warned Friday that one of the barriers to expanding investment and spurring more growth is local governments that refuse to cooperate with his vision. "If local governments with vested interests don't support the plan, it will slow it all down," he said.

Analysts say they don't doubt Mr. Yudhoyono is serious about leaving a higher-growth economy as he finishes his second and last term in office. And despite the concerns over infrastructure, Indonesia has still attracted billions of dollars in foreign investment in recent years.

"This is about the legacy that he leaves behind," said Mr. Ie at Nomura. "He has helped give Indonesia stability but if he wants to create real economic growth, he has to build infrastructure. "

Mr. Yudhoyono also announced plans Friday to create a new committee to keep reforms on track. The Committee for Indonesian Economic Acceleration and Expansion will be headed by the president and include members from the government, private-sector industries as well as state-owned enterprises. It will be given special powers to encourage people to stick to the president's plans.

"This special economic team is significant, " said Umar Juaro, an economist from the Center for Information and Development Studies. "They will have the same power as ministers or government officials to push and to make the programs happen."

Encouraging more infrastructure spending alone could bring Indonesia to Mr. Yudhoyono's targeted growth rate, analysts said. If it can boost infrastructure spending to 7% of GDP then the growth rate would accelerate to 8%, according to Morgan Stanley. If it keeps infrastructure at 4% of GDP then growth will slide to 6%

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