Strongest signal of intentions will be new Cabinet lineup<\/p>\n
Although the final result of the presidential election runoff
\nhas yet to be announced, it seems certain that Gen. (ret) Susilo
\nBambang Yudhyono will be the next president. The Jakarta Post's
\nKornelius Purba talked with the World Bank's Country Director for
\nIndonesia, Andrew Steer, on Wednesday about international
\nexpectations regarding the new government. The following are
\nexcerpts from their conversation.<\/p>\n
Question : What do you think should be the top priority of the
\nnew government, which will very likely be led by General Susilo,
\nso as to maintain and even increase market confidence in the
\nIndonesian economy?<\/p>\n
Answer : The elections themselves have been a major
\nachievement for Indonesia. Whoever is to win, they have rightly
\npromoted pride among Indonesia's citizens, and built confidence
\nin Indonesia's stability and maturing democracy. This in itself
\nis very helpful to market sentiment. Today Indonesia faces
\ngreater opportunities than at any time in the past seven years
\nsince the crisis.<\/p>\n
However, as was noted clearly during the campaign, investment,
\nat 20 percent of GDP, remains much too low. It should be 30
\npercent, and growth is still insufficient to create enough good
\npaying jobs. The government will be well positioned to act to
\naddress impediments, thus improving investor confidence. Some
\nactions can be done quickly. For example it takes 150 days to get
\npermission to start a company in Jakarta, compared with 33 days
\nin Thailand, 41 days in China and 56 days in Vietnam.<\/p>\n
Cutting this sort of red tape can be done quickly. So too,
\nblockages that are preventing specific major investments can
\noften be removed quickly. Other vital actions -- improving the
\nlegal system, reforming the civil service, curbing corruption,
\netc. -- will, of course, take years to achieve. But even here the
\nannouncement of time-bound, monitorable road-maps can demonstrate
\ndecisiveness and action, which is vital to changing investors'
\nperceptions.<\/p>\n
Other key ingredients required to create improved market
\nconfidence include a continuation of the excellent macroeconomic
\nmanagement of recent years, and a campaign to restore the eroded
\nphysical and social infrastructure that is the consequence of the
\ncrisis. In all of these issues, as in every new administration in
\nevery country, the strongest signal of intent will be the
\nappointment of the members of the Cabinet. These must be men and
\nwomen of technical excellence, integrity and courage. This will
\nbode very well for the future.<\/p>\n
How do you see the short and medium-term outlook for
\nIndonesia's fiscal sustainability in the absence of any debt-
\nrescheduling facility?<\/p>\n
Indonesia has done an excellent job in managing its fiscal
\naccounts in the last few years. The government's debt as a share
\nof GDP has fallen from over 100 percent to 59 percent in just
\nfour years. Indonesia still has a big debt burden but is no
\nlonger in crisis. And each year Indonesia has more flexibility.
\nIt is now internationally creditworthy, as demonstrated by the
\nbond issuance early this year. So Indonesia deserves strong marks
\non fiscal management, and indeed now is the time to focus on
\nexpanding prudently, expenditure for infrastructure and social
\nservices.<\/p>\n
Do you mean that it is impossible for Indonesia to ask for
\ndebt rescheduling outside of the Paris Club mechanism?<\/p>\n
Indonesia no longer needs wholesale rescheduling, but there
\nare certainly financial options looking forward. This year
\nIndonesia successfully graduated from the IMF program and fully
\nnormalized its relations with its creditors, and has also managed
\nto significantly improve its credit ratings. Opportunities for
\nformal debt rescheduling outside of the Paris Club mechanism are
\nnow very limited. There are still opportunities to undertake
\nsmall debt swaps, and also to manage the debt structure by
\nborrowing at low interest rates to pre-pay higher interest rate
\ndebt, which is like debt rescheduling but with a different name.<\/p>\n
Fuel subsidies here have ballooned to more than Rp 63 trillion
\nas the government has decided not to raise fuel prices this year.
\nHow do you assess this huge subsidy burden set against fiscal
\nconsolidation in the coming fiscal year?<\/p>\n
If there is any good news about having such a large subsidy it
\nis that it provides a lot of potential resources for the
\ngovernment should it choose to reduce or eliminate it. These
\nresources could then be used to invest in schools, clinics,
\npoverty programs and the like. There is a lot of analysis showing
\nthat the bulk of the benefits of these subsidies go to the rich
\nand not the poor, and that the subsidies don't help the economy.<\/p>\n
Raising prices does cause pain, however, and is often
\ndifficult politically. One idea would be to remove them according
\nto a clear, announced path and specifically allocate the funds
\nsaved for pro-poor programs that would more than compensate those
\nwho are least able to afford price increases<\/p>\n
Do you foresee any changes in Indonesian relations with the
\nCGI creditor consortium under the new government?<\/p>\n
The CGI has served a very useful purpose, but needs to change
\nas Indonesia is changing. The needs of a newly confident, post-
\ncrisis Indonesia are different to those of the crisis period. We
\nstrongly support a transition towards full government leadership
\nof the CGI (Consultative Group on Indonesia), and believe that
\nthere are exciting options for turning it into a genuine
\ndevelopment forum where decision-makers on both the international
\nand Indonesian sides can help solve real problems.<\/p>",
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