Indonesian economy was ranked 16th in the world in 2015. Entering 2016, Indonesian economic performance goes up with increasing GDP of 4.79% in 2015 to 5.02% in third quarter of 2016. It was a good performance given the weak global economic conditions throughout the year of 2016. Global growth in 2016 was slower than initially expected. The World Bank is estimated to have fallen to 2.3 percent in 2016, the weakest performance since the global financial crisis. This slow global growth was an effect of elections in the United States, the United Kingdom's decision to leave the European Union, and amid rising uncertainty about future policy direction. However, these problems do not affect Indonesian economic downturn. From the beginning of 2016 to the end of the year, Jakarta Composite Index even increased 15.32% to 5,296.711 point, the highest in history across the world.
The Indonesian economy is expected to remain positive. Indonesia's GDP growth rate is predicted to increase to 5.2% in first quarter of 2017 and will continue to improve significantly in the future. The projection assumes household consumption and investment will remain strong. In addition to that, export conditions also expected to improve. This improvement, however, should be supported by a stronger estimate of the global economy and world trade volumes as well as an increase in Indonesian export commodities supply.
According to The Global Competitiveness Report 2016-2017, Indonesia has decline to rank 41st from previous rank of (37th). Indonesia still lags behind other countries in ASEAN: Singapore (2nd), and Malaysia (25th). Similar to previous years, Indonesia performs better than the Philippines (57th), Vietnam (60th), and Cambodia (89th). The report stated that Indonesia's overall performance remains uneven. Even though Indonesia's quality of infrastructure competitiveness is still in rank 60th, quality of public and private governance was decline to rank of 56th. However, some aspects have been sounding the alarm for immediate intensive repairs to achieve the desired strong economy. Labor market conditions become the weakest aspect (rise seven places to rank 108th). Furthermore, the public health situation and primary education are cause of even more concern (ranked 100th from the previous rank 80th).
Indonesia's infrastructure development is still relatively low. Its infrastructure quality score stands at 4.2, still below the average of the ASEAN countries (4.4), nevertheless infrastructure development has a large multiplier effect on the economy. The resulting impact of infrastructure investment on the economy is greater than the value of the investment. This lack of infrastructure investment creates bottlenecks and high costs of transportation and logistics, which at the end of the day reduce the sustainable growth rate. The proportion of Indonesian logistics costs to GDP is 27%. In the Logistics Performance Index (LPI) 2016, Indonesia was ranked 63rd of 160 countries. To date, the total expenditure for infrastructure in the state budget amounted to 2.3% of GDP, well below the average of developing countries (5.5%). Inadequate infrastructure services mean lower quality of life. Hence, infrastructure investment is necessary to sustain growth and improve competitiveness. Infrastructure development is essential to improve Indonesia export performance, support economic growth, and reduce the poverty. In addition, the United Nations reported that infrastructure investment is urgently required in Indonesia mainly because of the rapid urbanization. Agglomeration economies offer the opportunity to boost productivity growth.
However, not all regions in Indonesia perform well. Thus, to unlock the benefits, sufficient infra-structure investment is critical.
The National Medium Term Development Plan 2015-2019 (RPJMN 2015-2019) states that infrastructure development in Indonesia is aimed at strengthening national connectivity to achieve equitable development, to accelerate the provision of basic infrastructure (housing, clean water, sanitation, and electricity), to guarantee water, food, and energy security, to support the national defense, and to develop urban mass transportation systems, which were all conducted in an integrated manner and by leveraging the role of Public Private Partnership (PPP). The Government intends to make PPP scheme as an approach in sector and cross- sector infrastructure development. The government continues to seek the best efforts to increase the participation of enterprises and societies in development and the financing of infrastructure sector. The government set several main targets related in improving effectiveness and efficiency in the financing of infrastructure, namely (i) PPP implementation as infrastructure development approach; (ii) the availability of financial support in fulfilling infrastructure targets through the provision of alternative infrastructure financing well beyond government funding through the PPP scheme and other creative financing; (iii) infrastructure management efficiency and improved quality of infrastructure services provided by the government or by enterprises; (iv) the acceleration of decision-making process and human resources capacity building.