The Connectivity Policy and Its Relevance to East Kalimantan Context

When I was in GTZ national staff exchange to Himachal Pradesh (HP), India, I heard about “connectivity policy” applied by Indian government. It is the policy that aims to ensure all villages are connected to the capital of the state by road. I visited a small settlement located in the couple of hills behind the capital of HP, Shimla, which was connected by road. I should explain here that the level of difficulty of road construction is high as it is in the high side of hill, and interestingly, it is a small settlement where only few households are there, which we might think that it is not economically efficient for the road construction. However, the road is still constructed though it is just a gravel road.
At that time I thought that it is an interesting policy, particularly for East Kalimantan where some villages are even not connected to the capital of district. In terms of outcome based management, instead of keep talking about road construction only, let’s measured that effectiveness by counting the percentage of villages that connected by road to the capital of district.
Now I started to learn about economic in introductory program in ANU. The lesson is actually just the basic of economic way of thinking. But I just realized that I wasn’t aware about that before.
The main lessons is that when society create larger market which indicated by more quanityty demanded and supplied in ‘relatively’ free market, the benefit to society (or in economic jargon called as “total surplus”) will be increase although that the new equilibrium price may higher than the previous one. Why is it like that? The answer is simple: because more consumers who able purchase the products and services they need, and more producers who produce and able to sell their products and services. Both producers and consumers (society) are in better off.
Thus, how to make more demand and supply? The very basic theory of demand and supply said it is “price” that whill change the quantity demanded and supplied, and what they call as “non price determinant” that will change the demand and the supply. In demand, there are six non price determinant i.e. income, consumer taste, price of substitute, price expectation, price of complement, and number of customers. Meanwhile, there are five non price determinant factors in supply i.e. technology, price of factors, price of alternative goods, price expectation, and number of producers.
Now I come to the main point which is connectivity. I believe that connectivity is the most influencing factors to those non price determinants both for supply and demand. Connectivity as part of the public infrastructure outcome can create more investment, employment and private sector output (Munnell, 1990), and more public infrastructure can help to alleviate poverty (Buddhadeb & De, 1998). President Yudoyono also believe that if he make double spending in infrastructure, to $140 billion during his second presidency, it will help him boost economic growth to 7% by 2014 from an estimated 4.3% last year (Kate & Sukarsono, 2010). It means connectivity can create more income and more number of consumers, which at the end increase consumer demand. Connectivity can decrease the transport cost of producers (price of factors) and it can also increase the number of producers coming to the market, which at the end increase the supply.
If we look at the geographic of East Kalimantan connectivity can be achieved either by road, water or air. However, the most reliable and efficient way is road because it cost peoples less and relatively independent from the weather. Although road construction is more expensive in the investment but it will cost society less than air and water.
Public infrastructures such as roads and bridge demand a lot of money. However, East Kalimantan region has more than US$ 200 million per annum beside deconsentration and assistance fund from central government. Therefore, it is very difficult to accept the fact that from time to time local governments in East Kalimantan, included the province government, spent the budget much less than the plan. In 2007, governement spending was just 78% from its planned, while in 2009 most likely not reach 70% because the report per mid of December 09 shows the spending was just 65%. Whereas there are many villages are still not well-connected to the centre and the poverty is still more than 15% (I even beleive the figure is more than 30% particularly in districts). I would suggest to the governor and all mayors in East Kalimantan to prove to public that they are capable to spend the public budget wisely which means spend the planned amount for the strategic activities and programs which will bring the welfare to the society. Only by that way, East Kalimantan can push central government to review the fiscal decentralization policy in order to have more public budget in the region.

Bibliography
Buddhadeb, G., & De, P. (1998). Role of Infrastructure in Regional Development: A Study over the Plan Period. Economic and Political Weekly , Vol. 33, No. 47/48 , 3039-3043+3045-3048.
Kate, D. T., & Sukarsono, A. (2010). INDONESIA: UNFINISHED HIGHWAY TO GROWTH. New York: Business Week.
Munnell, A. H. (1990). How Does Public Infrastructure Affect Regional Economic Performance? New England Economic Review , 11-22.
Badan Pemeriksa Keuangan Republik Indonesia/Indonesia's Supreme Audit Institution (2008). Audit Report to Financial Statement of The Province Government of East Kalimatan Fiscal Year 2007.