Focus on the poor

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.

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