CGI applauds macroeconomic progress, urges deeper reform
Dadan Wijaksana, The Jakarta Post, Jakarta
Indonesia's traditional donors grouped under the Consultative Group on Indonesia (CGI) have welcomed the country's macroeconomic improvements, but warn that slow progress in structural reform could impede economic growth.
"Much has happened since the last meeting in January, from the Iraq war to SARS ... but under these circumstances Indonesia has done remarkably well macroeconomically," World Bank country director Andrew Steer said during a press briefing after the CGI midterm meeting on Monday.
The World Bank is the coordinator of the CGI.
The donors held their annual meeting on the resort island of Bali in January, during which they pledged some US$2.7 billion in fresh loans to help finance this year's state budget deficit, estimated at 1.8 percent of gross domestic product.
The results of the half-day meeting on Monday will be used as one of the bases for deciding the group's next loan commitment to the country, which is expected to be made at the upcoming October annual meeting.
Despite the macroeconomic upturn -- reflected in modest inflation, a lower central bank benchmark interest rate and a stronger rupiah -- the donors emphasized the need for the country to speed up legal and judicial reform in order to improve the investment climate.
"(A)t the same time, investment is still not growing to the extent that is required to promote growth and reduce poverty.
"So we talked about also what it would take to improve the investment climate. One particular issue is legal reform," Steer said.
With the pace of progress in that area remaining slow, investors have regarded the country's judicial institutions as lacking credibility, putting a lid on efforts to lure investors.
With limited efforts to create a better investment climate here, foreign investors have remained rare, holding back the country's economic growth and hampering the poverty reduction program.
More people could be absorbed into the workforce and lifted out of poverty if the economy could post a higher level of growth, at least 6 percent per annum.
Among the items highlighted by the CGI members as evidence of the slow pace of legal reform were: crucial laws on a judicial commission and constitutional courts were still being deliberated, and there has been little progress in the planned establishment of an anticorruption commission.
"If Indonesia could make genuine progress on the investment climate, governance and legal reform, as it has on macroeconomic policy, it (the economy) could again become one of the brightest performers in East Asia," Steer said.
Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said in a speech that the government would continue to work on improving the country's legal and judicial sectors, as well as other areas of concern for investors.
"Decentralization still poses problems, but the regions are becoming more sensitive to business climate issues. We would like to accelerate this process ... ," he said.