Japanese loans and the future of mass rapid transportation

Japanese loans and the future of mass rapid transportation Fithra Faisal Hastiadi ;  The Executive Director of the Indonesian Progressive Institute, A Lecturer in the economics and Business School at the University of Indonesia

JAKARTA POST, 15 Desember 2012

There is a mounting need to overcome traffic jams in Jakarta. The data speaks for itself. Based on research conducted by Yayasan Pelangi, economic losses due to traffic jams in Jakarta have been estimated to top Rp 12.8 trillion (US$1.3 billion) per year, which includes losses related to wasted time, fuel costs and health costs.  The 2004 Study on the Integrated Transportation Master Plan for the Greater Jakarta Area (SITRAMP II) said that if there are no improvements made to local transportation systems, estimated economic losses will reach Rp 65 trillion per year by 2020. Given current traffic trends, Jakarta is on the verge of total chaos.  Efforts to cope with the problem have long been discussed. Former governor Fauzi Bowo previously launched plans for a 14-kilometer Mass Rapid Transportation (MRT) system to run from Lebak Bulus, South Jakarta, to the Hotel Indonesia traffic circle in Central Jakarta. Construction of the MRT was intended to be started this year and to be finished by 2016. The first phase of construction was to be a 6-kilometer underground system from the Hotel Indonesia traffic circle to Jl. Sisingamangaraja in South Jakarta. But Fauzi’s successor, Governor Joko “Jokowi” Widodo has expressed concerns on the size of the loan that the city was to accept from the Japan International Cooperation Agency (JICA) to pay for the project, not to mention expensive ticket fares. Jokowi is right to worry about debt and the overly top-down planning process of the MRT project. Given the nature of Japanese loans, this is unsurprising after all. There have been a number of studies on Japanese foreign loans during recent years. We can see that since 1989, Japan has been one the world’s largest donors, with its aid budget comprising more than one-fifth of all of foreign loans from the industrialized world. When compared with other OECD countries, it is evident that Japan has issued loans to fund priority projects for economic infrastructure development, such as roads, railways and irrigation projects. But the relationship between JICA and private institutions for the project loans has created some basic suspicions. The suspicions were later justified by the designation of eligible companies to contracts to be funded by the loans. A list of companies that have won contracts worth more than ¥2 billion for construction work and ¥100 million for consulting services was published by the Overseas Economic Cooperation Fund (OECF), the Japanese bureau responsible for disbursement of loans. These facts surely raise many questions about the aims and motives of the Japanese foreign loan programs. Even though Tokyo claims that its loans are now largely untied, they argue that Japanese firms won a disproportionate share of contracts through informal tying techniques. Two culprits commonly cited are the exclusive use of Japanese consultants to conduct feasibility studies and to provide engineering services, and “on request” basis for loans project identification. The use of consulting firms for feasibility studies and engineering services, resulted an informal tying, as connections between consulting firms and suppliers created an incentive for project designs to specify materials and equipment that can be supplied only by friendly firms.  Japanese consulting firms have lobbied to maintain the generally tied arrangements for these activities. According to official statements, the stipulation that Japanese loans will fund only projects requested by potential recipients promotes self-assistance; specifically, it helps ensure that loans will fund projects with a high priority in the recipient country’s own development plan. Although Japan is not the only country to use loans to promote the commercial interests of its private businesses, a common impression in business circles as well as in the international development community is that Japan is systematic and aggressive in promoting exports through loans. However, given the above facts, we should not stop development of the MRT. The MRT will have the capacity to transport 412,000 passengers a day, a huge figure if we compare it to the proposed monorail that would only be able to serve 39,400 passengers per day. The city is also bound by an agreement made between the JICA, the central government and the Jakarta administration.  The best option is to renegotiate the project while establishing common ground between stakeholders. ●