'WB should manage by example in Indonesia'<\/p>\n
The following is a statement made by 17 prominent NGO leaders,
\ngovernment critics and public figures present in a meeting with
\nWorld Bank president James D. Wolfensohn in Jakarta Wednesday.<\/p>\n
JAKARTA: World Bank President James D. Wolfensohn's visit to
\nEast Asia provides the Bank with an excellent opportunity to move
\nbeyond rhetoric and lead by example in helping the countries of
\nthe region to overcome the financial crisis.<\/p>\n
The World Bank has called for wide ranging reforms covering
\nthe region's financial and industrial sectors, trade regimes,
\nexternal debt and government institutions. These reforms should
\nencourage greater openness, transparency and accountability. The
\nBank has also called for increased support for the poor through
\ngrassroots efforts to create jobs, and safeguard health and
\neducation.<\/p>\n
These are laudable goals. However, World Bank lobbying in
\nIndonesia is unlikely to succeed by word alone. Like Southeast
\nAsia's governments, the World Bank's credibility has been
\nseriously damaged. Wolfensohn's message is unlikely to find a
\nreceptive audience until he is ready to acknowledge the Bank's
\nrole in perpetuating policies that contributed to the crisis, and
\nto take steps to initiate reforms in his own organization to
\nprevent similar occurrences in the future.<\/p>\n
Until very recently, the Bank has assumed a largely uncritical
\nstand with regards to Indonesian government policy, and backed
\nits continuous praises with an annual infusion of financial
\nsupport. In the context of the current crisis, independent
\nIndonesian economists have long warned of the dangers of huge
\ncurrent account deficits supported by over valued rupiah, poor
\nenforcement of prudential regulations in the banking sector, and
\nheavy reliance on short-term foreign loans. Yet the World Bank,
\nin its 1997 policy review released just a month before the Thai
\ndevaluation, and even until the end of July 1997, still took an
\noveroptimistic view of Indonesia's economic prospects.<\/p>\n
The Bank's substantial influence in financial circles
\nencouraged overconfidence among domestic and foreign investors.
\nThe World Bank's assessment of Indonesian economic prospects in
\nthe 1990s provides disincentives for reform and reinforced a
\ntending towards higher foreign debt holdings. By suggesting all
\nis well, the Bank has misled both domestic and foreign investors.
\nThe Bank also failed to link financial sector loans to enhanced
\nsupervision and oversight in the bloated banking sector.<\/p>\n
The World Bank's reluctance to criticize the Indonesian
\ngovernment reflects the cozy, mutually beneficial relationship
\nthat has developed over the years between officials of the Bank
\nand the government of Indonesia. For the World Bank, Indonesia
\nhas consistently been the most co-operative of the Asian
\n\"miracle\" economies.<\/p>\n
Task managers at the bank, whose performance is judged on the
\nbasis of the volume of new loans generated, found ministers
\nanxious to develop new projects and accept new loan obligations.
\nAlthough project implementation was often poor and
\nmisappropriation of funds routine, there was never a shortage of
\nprojects in the pipeline. Despite an increasing debt burden,
\nIndonesia always paid on time.<\/p>\n
The Indonesian government also found the relationship
\nattractive. Not only did the Bank inject new funds to support the
\nbureaucracy, but it also agreed to withhold details of project
\nimplementation from the public. Moreover, the Bank was willing to
\nsuppress information and analyses that presented Indonesian
\ndevelopment efforts in an unfavorable light. A particularly
\negregious example of this was the World Bank's Indonesia Poverty
\nStudy of 1990. When the government rejected the initial analysis
\nthe Bank agreed to revise the figures, and with the stroke of a
\npen, lowered the incidence of poverty by 60 percent (Pincus 1996,
\n15). It is worth noting that the Bank carried out similar
\nmanipulations of baseline socio-economic data in the Philippines
\nunder President Ferdinand Marcos (Boyce 1993, 47).<\/p>\n
A lack of Indonesian government and World Bank transparency,
\nhas excluded the Indonesian public from information on project
\nselection, formulation, supervision and evaluation. Reports that
\na significant percentage of World Bank funds in Indonesia went
\nmissing each year were met with flat denials from both the
\ngovernment of Indonesia and the bank. No promises were made by
\neither party, however, to improve public access to internal
\nsupervision and evaluation reports, or to conduct independent
\naudits in order to demonstrate the fallacy of these claims.<\/p>\n
Meanwhile, the bank has capitalized on public ignorance by
\nproclaiming projects such as the transmigration program and the
\nvarious kampong improvement projects as models of equitable
\ndevelopment (World Bank Report, 1997). Yet independent observers
\nhave raised questions concerning the financial accountability of
\nthese projects, and in the case of transmigration, the impact of
\nthe project on the environment and the rights of the indigenous
\npeoples.<\/p>\n
If Wolfensohn is sincere in his efforts to promote reform in
\nEast Asia, he should demonstrate that the World Bank has no
\nintention of shirking its responsibilities to the Indonesian
\npeople. In order to achieve this, urgent policy changes are
\nrequired on three fronts: transparency, public accountability and
\nredistribution of the burden of public sector debt.<\/p>\n
Transparency: The World Bank's call for Indonesian public
\ninstitutions to adopt a policy of greater transparency is long
\noverdue. Yet the bank's hesitation to urge greater openness
\ncannot be separated from the bank's own secretive behavior with
\nrespect to its operations in Indonesia. Wolfensohn should
\ndemonstrate the importance of transparency by immediately
\nreleasing to the public complete information on the World Bank's
\nIndonesian portfolio, including supervision and evaluation
\nreports and financial details.<\/p>\n
Accountability: The World Bank should demonstrate the
\nimportance of accountability by acknowledging its own role in
\nIndonesian policy formulation prior to the financial crisis. The
\nbank should also accept full responsibility for financial
\nirregularities relating to World Bank projects and carry out
\ndetailed, independent audits of all existing and past bank
\nprojects. If it is found that supervision of bank-funded projects
\nhas been insufficient, the bank should accept a reduction of
\nIndonesia's debt obligations. It is unreasonable to expect that
\nfuture generations of Indonesian taxpayers must carry the entire
\nburden of corrupt practices that were not addressed by the bank's
\nmonitoring systems.<\/p>\n
Restructuring public sector debt: The World Bank should take
\nthe lead in restructuring Indonesia's oppressive debt burden, by
\nrenegotiating payments to the bank over the coming five years.
\nWolfensohn proposes new lending to Indonesia at a rate of US$4.5
\nbillion over three years. Yet this figure still implies net
\nnegative transfers to Indonesia from the bank over the same
\nperiod. According to the most recent budget estimates, debt
\nservicing will absorb 27 percent of Indonesian central government
\nexpenditures this fiscal year. Yet even this figure is an
\nunderestimate since it assumes that the exchange rate for rupiah
\nis Rp 5,000 per U.S. dollar. If instead the rupiah depreciates to
\nlower than Rp 7,000 per U.S. dollar, then more than 40 percent of
\ncentral government spending will be allocated for debt servicing.<\/p>\n
The bank can immediately support programs to protect the
\nIndonesian poor by rescheduling debt payments and reducing the
\nsize of Indonesian's debt payments to a level commensurate with
\nIndonesia's capacity to pay. Although this would impose a
\nfinancial burden on the World Bank, it would demonstrate to the
\npeople of Indonesia that the bank is ready to take the strong
\nmeasures required to reestablish the organization as a credible,
\nprofessional agency.<\/p>",
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"sponsor": "Okusi Associates",
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