The World Bank in Indonesia: What else to be done?<\/p>\n
This is the second of two articles based on a presentation by
\nIndonesia's World Bank Country Director, Mark Baird, at a seminar
\non Indonesia's recovery held by the Kapital business tabloid in
\nJakarta on May 11.<\/p>\n
JAKARTA: It is still too early to say what the new Country
\nAssistance Strategy will look like. A lot will depend on the
\npriorities and preferences of the new government.<\/p>\n
But it is clear that our role and mandate is to support
\nprograms that reduce poverty. And initial discussions suggest
\nthat the following themes will play an important role in any
\npoverty-reduction strategy:<\/p>\n
* Economic recovery and sustained growth. Worldwide experience
\nteaches us that sustained growth is essential for sustained
\npoverty reduction. That is why we, together with the
\nInternational Monetary Fund, have put so much emphasis over the
\npast two years on restoring macro stability -- and pushing ahead
\nwith bank and corporate restructuring.<\/p>\n
We are starting to see the benefits in terms of economic
\nrecovery and lower levels of poverty. But much more needs to be
\ndone. We also need to think about how to sustain this growth over
\nthe medium term. That will require investment -- in both human
\nresources and physical infrastructure. It will also require
\ncloser attention to protecting the natural resource base of this
\ncountry, including forests, water and land.<\/p>\n
* Equal opportunity and access for the poor. Even with
\nstronger growth, there is no guarantee that the poor will be able
\nto take full advantage of the new opportunities for employment
\nand income generation.<\/p>\n
They need access to basic education and health services, as
\nwell as basic infrastructure such as water, sanitation and roads.
\nThis requires a reorientation of public expenditures, and aid-
\nfinanced programs, with a renewed focus on delivery of basic
\nservices to the poor, especially in poorer regions of the
\ncountry.<\/p>\n
The poor also need to be empowered and given a voice so that
\nthey can have a say in their own development programs. Subsidies
\nwhich don't serve the poor should be phased out. Social safety
\nnet programs, introduced during the crisis, can also be scaled
\nback. But some core programs should be maintained, to help poor
\nfamilies cope with vulnerability to unexpected changes in
\nfortune.<\/p>\n
* Good governance and anti-corruption. Good governance is
\ncentral to improving confidence in public institutions and
\ndevelopment programs. The new government is committed to fighting
\ncorruption. But progress has been painfully slow.<\/p>\n
It is widely recognized that judicial reform is at the heart
\nof any governance agenda. This is essential to restore confidence
\nin the courts -- so that contracts can be enforced and those
\ninvolved in corruption can be held accountable.<\/p>\n
There is also a need for fundamental reforms in the civil
\nservice. Higher salaries alone will not reduce corruption without
\naccountability.<\/p>\n
Decentralization needs to be managed carefully, and local
\ngovernments need to gear up quickly to handle their new
\nresponsibilities -- not doing so will increase the risk that
\nquality of service delivery will actually decline.<\/p>\n
Procurement systems and financial management need to be
\nstrengthened at all levels of government.<\/p>\n
Not all of these activities require lending from the World
\nBank. Indeed, some of our most important contributions to this
\ncountry have come through our policy analysis and advisory
\nservices.<\/p>\n
We have raised difficult issues with the government, from
\nimport monopolies to connected projects, well before it was
\npossible to discuss them in public.<\/p>\n
And we continue to work on a range of policy issues, from debt
\nand public expenditure management, to sector strategies for
\nhealth and energy.<\/p>\n
We are currently completing a poverty assessment, which will
\nimprove our understanding of the current situation and help lay
\nthe groundwork for post-crisis poverty programs.<\/p>\n
All of our economic reports are now made available to the
\npublic. And we increasingly facilitate public discussion of
\npolicy issues. Perhaps the most notable example over the past
\nyear has been in the forestry sector, where we have worked
\nclosely with donors and civil society groups to increase
\nawareness of the problems of illegal logging and the need for
\nmore community involvement in forest management.<\/p>\n
The World Bank is also actively involved in aid coordination.
\nWe convene regular donor meetings in Jakarta on topics of mutual
\ninterest (e.g., forestry, judicial reform).<\/p>\n
We also chair the Consultative Group on Indonesia (CGI). The
\npurpose and format of this group has changed dramatically in
\nrecent years. The focus now is much more on improving the
\neffectiveness of development assistance.<\/p>\n
The February meeting of the CGI was held in Jakarta for the
\nfirst time, and included representatives from civil society. The
\ngovernment team was remarkably open in discussing the challenges
\nthey face, from reducing debt to controlling corruption and
\nmanaging the forests.<\/p>\n
Donors responded with a strong pledge of financial support --
\nincluding a significant increase in grants. There was particular
\ninterest in the proposed governance partnership, sponsored
\njointly with the United Nations Development Program and the Asia
\nDevelopment Bank. This will help coordinate grant funding and
\nprovide technical assistance to support governance reforms.<\/p>\n
We expect lending by the World Bank to decline from the
\nexceptional levels of the past few years. We have pledged to
\ndisburse $1.5 billion during the current fiscal year, but this
\nmay well be reduced in line with the lower borrowing requirement
\napproved by the House of Representatives.<\/p>\n
In subsequent years, as the economy recovers and the fiscal
\nposition improves, our general budget support will be phased out.
\nInstead, we will shift back toward financing development programs
\nfocused on poverty reduction.<\/p>\n
This will be supported by International Development Assistance
\n(IDA) financing (0.75 percent service fee, no interest, and 35
\nyears maturity, with 10 years grace) over the next couple years.<\/p>\n
The International Bank for Reconstruction and Development
\n(IBRD) lending levels will initially be constrained by
\nIndonesia's debt servicing capacity and our own exposure ceiling.<\/p>\n
However, there may be scope for greater access to IBRD
\nresources in later years. In our view, IBRD loans (effective
\ninterest rate of 6 to 7 percent, compared to commercial rates for
\nIndonesia of 10 to 12 percent for much shorter maturities) remain
\na relatively cheap and effective source of financing for
\ndevelopment programs.<\/p>\n
So, in conclusion, let me just say that our program in
\nIndonesia is changing to reflect the new realities and needs of
\nthis country -- as well as the changing role of the World Bank in
\nthe global community.<\/p>\n
However, as was graphically illustrated by the recent
\ndemonstrations in Washington, our role is still not well
\nunderstood. I find the same misunderstandings as I travel around
\nIndonesia.<\/p>\n
Many people still see us as a commercial bank, serving the
\ninterests of the West, rather than as a development agency,
\ncommitted to poverty reduction.<\/p>\n
In response, we have started to become much more open about
\nour activities. Under the World Bank's Disclosure Policy, most of
\nour documents are now available to the public. You can find out
\nmore about our Indonesia program on our website
\n(www.worldbank.org) or by visiting our Public Information Center
\nin the Jakarta Stock Exchange Building (Tower II, Floor 13).<\/p>\n
As we become more open about our activities, we also have to
\nbe more humble about what we can achieve alone. Contrary to the
\nviews of some in Jakarta, we are a small player in Indonesia.<\/p>\n
We don't presume to have all the answers. Nor do we look to
\nthe government to solve all of Indonesia's problems. Often the
\nsolution lies in what the government should not be doing -- and
\nproviding space for others (whether it be the private sector,
\nNGOs or communities) to get on with the job.<\/p>\n
The future of this country lies in the hands of the Indonesian
\npeople. However, we will do whatever we can to support your
\nefforts to rebuild this country -- and ensure that all,
\nespecially the poor, share in the benefits of sustained
\ndevelopment.<\/p>",
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