Aceh growth diagnostic : identifying the binding constraints to growth in a post-conflict and post-disaster environment

49568 July 2009 Identifying the binding constraints to growth in a post-conflict and post-disaster environment  THE WORLD BANK OFFICE JAKARTA Indonesia Stock Exchange Building, Tower II/12-13th Fl. Jl. Jend. Sudirman Kav. 52-53 Jakarta 12910 Tel: (6221) 5299-3000 Fax: (6221) 5299-3111 THE WORLD BANK The World Bank 1818 H Street N.W. Washington, D.C. 20433 USA Tel: (202) 458-1876 Fax: (202) 522-1557/1560 Email : feedback@worldbank.org Website : www.worldbank.org Printed in July 2009 ACEH GROWTH DIAGNOSTIC: Identifying the binding constraints to growth in a post-conflict and post-disaster environment is a product of staff of the World Bank. The findings, interpretation and conclusion expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the government they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomination and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement of acceptance of such boundaries.  Identifying the binding constraints to growth in a post-conflict and post-disaster environment  Table of Contents Foreword iv Acknowledgments v Glossary of Terms vi Executive Summary 1 1. Introduction 3 2. Methodology 7 3. Understanding Investment and Growth in Aceh 11 4. The Con ict and Post-Con ict Environment in Aceh 17 5. Access to Credit 21 a. Is financing a problem in Aceh? 21 b. Is the cost of capital high in Aceh? 22 c. Is it low savings and no access to external finance? 24 d. Is it poor intermediary function by local banks? 25 e. If not, is it credit rationing by banks? 27 6. Low Social Returns 31 a. Infrastructure: roads 32 b. Infrastructure: electricity 34 c. Education and human capital 35 7. Low Appropriability 39 a. Macroeconomic risks 39 b. Business environment 40 c. Corruption 42 d. Transaction costs: taxation and payments for security 44 e. Market failures - coordination failures 49 f. Market failures - information failures 50 8. Conclusions 53 9. References 57 10. Annexes 63 Annex I