Fri, 05 Dec 2003

Focus on the poor

The focus of the World Bank Group's Country Assistance Strategy (CAS) for Indonesia for the 2004 to 2007 period will be, by and large, very similar to that of the 2001 to 2003 CAS -- that was, to reduce poverty through improving the investment climate, service delivery and governance.

This means that, apart from the regaining of macroeconomic and political stability, there have not been any other significant achievements made by the country over the past six years of its economic debacle.

In fact, judging by the 2001 to 2003 CAS targets, the country has largely been hovering at base-case performance over the past three years, with World Bank loan disbursements averaging only around US$400 million a year.

The incidence of absolute poverty did decrease from 27 percent of the total population in 1999, to 16 percent today (34 million). However, the overall condition of the country remains fragile as an estimated 110 million people still live on the verge of poverty with a daily expenditure of less than US$2. A slight decline in economic performance could plunge this large number of people into absolute poverty.

It is no wonder the CAS foresees that Indonesia will remain in a core World Bank lending program (base case) of between $450-850 million, much lower than the pre-1997 crisis high-case lending of up to $1.4 billion a year.

As poverty reduction is the overarching goal of the World Bank, a majority of the available funds will be allocated to the support of poverty-oriented projects at local and community levels.

This doesn't, however, mean simply pouring money into the communities of the rural or urban poor. The availability of loan funds will depend on predetermined performance benchmarks in transparency, accountability, efficiency and pro-poor development approaches.

The World Bank, sharply criticized for its strong support of the corruption-infested Soeharto regime for more than three decades, set good governance as one of the three top-priority programs within its 2004 to 2007 CAS. This basically made a lot of sense, because quality governance will influence the other two top-priority programs, improving the climate for high-quality investment and making service delivery responsive to the needs of the poor.

To put it briefly, combating corruption is the core issue of governance because, as the World Bank has often pointed out, corruption poses a particular problem for Indonesia. Thus, the bank aims to integrate governance through all its programs; from how projects are selected and designed, through to how they are implemented and monitored.

The World Bank has rightly concluded that poverty alleviation is hindered by inadequate employment opportunities and the lack of quality service delivery to the poor.

The persistently high unemployment rate has resulted from the low rate of new investment, which was in turn caused by bad governance. But good governance -- meaning effective law enforcement, good financial management and a good accountability system -- will not only improve the delivery of basic services to the people but also stimulate new investment.

The new CAS, therefore, will address the key areas most essential in attracting investment: stronger macroeconomic stability and financial sector, highly competitive business sector and adequate infrastructure.

The new CAS, like the 2001 to 2003 one, also promises a high- case lending program of up to $1.4 billion a year, contingent upon Indonesia's exceedingly high performance in implementing key reform areas. Yet it projects a base-case scenario ( 4-5 percent) for the country's economic growth between 2004 and 2007.

It is encouraging to note that the new CAS was drawn after gathering inputs through intensive consultations with more than 500 representatives from civil society organizations, in various provinces and central and local governments.

But the World Bank is also fully aware of the high risks of meeting even the base-case scenario of the CAS objectives. It fully realizes that the highest risk to the achievement of the CAS objectives is that the political will to address the issues of governance will not be forthcoming, given the utterly poor records in the anti-corruption campaign so far, and especially in view of the electoral period next year.