Govt unlikely to receive high-case lending scenario

The Jakarta Post, Jakarta

Despite the World Bank's pledge for a possible increase in its lending volume to Indonesia to a "high-case scenario", experts cast doubts on the government's ability to meet the requisite targets for the scenario.

The Bank, one of the country's largest creditors, has said it is set to provide Indonesia an annual loan of US$450 million to $850 million in the next four years under its "base-case scenario".

But, as stated in its July 2003-June 2007 country assistance report, the Bank could propose that Indonesia be made eligible for annual lending of up to $1.4 billion -- if it accelerated reform in a number of key areas.

To be made eligible for the high-case scenario, the government must make a more stringent effort in its reform drive; but some economists doubt it could meet the tougher requirements.

Pande Radja Silalahi and Sri Adiningsih both said Indonesia would likely face problems in meeting the targets of the base- case scenario, let alone those for the high-case scenario.

"Our track record in fulfilling our own promises is not that good. Let's focus first on meeting the targets of the base-case scenario. If it goes well, then we can pursue further goals in the next step," Pande of the Centre for Strategic and International Studies (CSIS) told The Jakarta Post.

To complicate matters, Pande and Sri said not all of the requirements carried specific measurements or monitoring criteria, which might cause different interpretations.

For example, one such requirement is the effective operation of the Anti-Corruption Commission as part of the country's judiciary and legal reform programs, as efficacy could be measured in various ways.

Despite numerous challenges, the high-case lending scenario is certain to be more beneficial for the country. Under this scenario, the Bank said the economic growth rate was likely to rise gradually to 6 percent by the end of the program's period, while the poverty rate could fall to 10 percent in 2007 -- lower than the pre-crisis level.

While income poverty has fallen from 27 percent of the population in 1999 to 16 percent today, no fewer than 110 million Indonesians currently live on less than $2 per day and remain vulnerable to falling back under the poverty line.

Action Targets Under World Bank Scenarios

--------------------------------------------------------------------------------- Outcome Areas Base Case High Case --------------------------------------------------------------------------------- 1. Investment climate

1.1. Macroeconomic - Maintain fiscal - Reduce reliance

target (further on debt financing

reduction of debt (divesting majority

ratio to below stakes in Lippo,

60% of GDP by 2006) BII, Permata and progress

- Maintain monetary in non-oil and tax-to-GDP

program (consistent ratio above 12.8%)

with inflation - Cutting inefficiency,

below 10%) spending and subsidy

1.2. Investment - Improve infrastructure - Strengthen financial sector

(finalizing and issuing (setting up financial safety

White Paper on the net, improving state bank

sector) governance, capital market

- Coordinate action to supervision and insurance

address constrains and pension regulations)

(setting up effective - Increase private investment

cabinet-level team) in power (continued tariff

reform, establishing

independent regulator in

electricity market)

- Reduce transaction costs for

business (progress in custom

and tax office reforms,

establishing one-stop shops

for investment approval) ------------------------------------------------------------------------------------ 2. Governance and Anticorruption

2.1. Public Procurement

management - Improve government - Stronger efforts in the sector

fiduciary management (issuing implementing regulations

(implementing state for state finance law, setting

finance law, making up treasury unit in finance

progress in adopting ministry, continuing special

treasure and audit program for SOEs)

laws)

2.2. Decentralization - Improve local fiscal

accountability (revising Laws

No. 34/2000 and 25/1999)

2.3. Justice sector &

Legal reform - Improve institutional - Improve governance in justice

framework for sector (ensuring of effective

corruption cases operation of both commissions,

(making progress in establishing effective

operationalization Judicial Commission, reform

of Anti-Corruption in Attorney General's Office)

Commission and

preparation for Anti-

Corruption Court) --------------------------------------------------------------------------------------- Source: World Bank