CGI applauds macroeconomic progress, urges deeper reform

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.