By Ed Davies
BANDA ACEH, Indonesia, April 1 (Reuters) - When Indonesian President Susilo Bambang Yudhoyono flew to London for this week's G20 summit, he had to ask the EU's permission to travel on Garuda airlines because the national carrier is banned from its airspace on safety grounds.
The ban reflects serious concerns about Indonesia's airline safety standards following a string of deadly disasters in recent years, but also highlights the generally shoddy state of infrastructure in the country.
"In the past, legal uncertainty used to be the number one issue" for investors, said Fauzi Ichsan, an economist at Standard Chartered bank. "Now it's weak infrastructure."
Maintenance lies at the heart of Indonesia's many infrastructure woes, and years of dwindling investment in roads, transport, power and water have exacted a heavy human and economic price.
Just a few days ago a dam burst on the outskirts of the capital Jakarta, sending a tsunami-like wall of water through a residential area that killed about a hundred people and destroyed or flooded hundreds of homes.
The dam, which dated from the Dutch colonial era, had been poorly maintained, critics said.
With economic issues at the top of the agenda in the April 9 parliamentary and July 8 presidential elections, attention is focused on addressing Indonesia's shoddy infrastructure.
HOPE AMID THE GLOOM
Yet amid the gloom, there is some hope.
From the gleaming new airport in Aceh's provincial capital to the broad coastal road, this westernmost tip of Indonesia has seen the benefit of billions of dollars invested in infrastructure.
A devastating tsunami in 2004 killed 170,000 people in the province and wiped out much of its coastal infrastructure. Since then, some $6.7 billion of donor and government money has been poured into rebuilding the province, one of Indonesia's poorest.
When President Yudhoyono took his election campaign to Aceh at the weekend, he reeled out an impressive array of statistics, citing the reconstruction of 134,000 new homes, 3,600 km (2,237 miles) of roads, and 20 ports.
The issue now is maintaining this infrastructure so that it functions well and improves economic efficiency.
Earlier this year, the government announced a 73.3 trillion rupiah ($6.36 billion) stimulus package, including spending on infrastructure, to help support national economic growth and spur domestic demand as exports slump amid a global slowdown.
"It's very important, the acceleration of infrastructure development will certainly accelerate economic growth which is also needed given the current global economic crisis," Ichsan of Standard Chartered said.
MULTI-TIERED PROBLEMS
Part of the problem with investing in infrastructure is regional autonomy, which means dealing with numerous tiers of central and local government, while the sweeping new powers of the anti-corruption agency to investigate graft makes civil servants reluctant to get involved in such projects.
Tough labour laws, difficulties getting the right land permits, and unpredictable courts all deter investors, while creaky infrastructure and poor maintenance hinder development and limit Indonesia's growth potential in numerous ways.
Indonesia's government is desperately trying to get the EU to lift its flight ban because of the impact on tourism. Yet as recently as this month, local media reported that inspectors had found loose screws and other safety lapses on aircraft.
Road and sea transport is also hazardous in the vast archipelago, and adds to the cost of doing business here.
A report published last year by the Asia Foundation on the cost of moving goods around Indonesia found that the "unreliable and expensive road transportation system is a growing constraint to Indonesia's development."
The survey looked at a range of issues including licencing costs, road charges, bribes, as well as poorly maintained roads which in turn lead to greater wear and tear on trucks and cars.
Much of Indonesia suffers from blackouts and power failures reflecting underinvestment in the power sector.
Only 60 percent of a crash government programme to build 10,000 megawatts of coal-fired power plants across Indonesia is likely to be in place by 2011 due to financing woes, a source at the state power firm told Reuters in February.
Aceh, however, shows what can be achieved in a relatively short time. The billions of dollars spent rebuilding, led by the state agency (BRR), wraps up in April and is generally considered a success. But, as Aceh Governor Irawandi Yusuf told Reuters this week, there is "still a lot more to do". ($1=11,530 Rupiah) (Additional reporting by Reza Munawir; Editing by Sara Webb)