Indonesia's major donors see slow progress in poverty reduction
Indonesia's major donors see slow progress in poverty reduction
Dadan Wijaksana, The Jakarta Post, Jakarta
Indonesia's major donors from the Consultative Group on Indonesia
(CGI) have emphasized that the country's progress in certain
structural reform programs has been slow, resulting in reduced
economic activity and investment, thus creating a slower rate of
poverty reduction.
The assessment was made on Wednesday during a mid-year review
by the CGI on the progress of the country's reform program.
Failure to address this problem could risk the government
being unable to fully utilize loans pledged by the CGI late last
year.
The grouping pledged some US$3.14 billion in loan in November
to help finance the 2002 state budget. However, some $1.3 billion
was tied to progress on policy performance concerning poverty
reduction and good governance.
"The theme of the June 12 CGI mid-year review is progress on
reducing poverty," the donor consortium said in a report.
While indicators for economic stability are improving, as
evident in a significant strengthening of the rupiah and stock
market, falling interest rates, relatively stable political and
social conditions, growth is still sluggish.
"Poverty reduction in Indonesia is dependent on fiscal
sustainability and economic growth, as higher growth would
contribute to a diminishing debt burden, employment growth and
declining rates of poverty," CGI said in a media statement.
About half of Indonesia's more-than-210 million population is
believed to be living in poverty, earning only around $2 a day.
The donor grouping said it would not turn a blind eye to
Indonesia's reform efforts, saying that since November the
country had moved on several reforms.
Those included a review of the tax system, a reduction in fuel
subsidies and the acceleration of asset sales.
The CGI groups together the country's 32 major creditors,
including 21 countries and 11 multilateral lenders, such as the
World Bank and the Asian Development Bank (ADB).
CGI has warned, following the pledges, that weak reform
efforts would carry "their own severe cost".
Such assessment should serve as a preliminary warning for the
government that it could face "obstacles" in its bid to secure
another loan commitment.
According to one estimate, only 40 percent of some $23.2
billion in loan pledged by CGI between 1998 and 2001 was
disbursed due to the government's slow progress in reform
performance.
Aside from exports, CGI said, an improvement in investment
should be the government's priority in order to reach higher
growth.
However, improvement in investment, especially foreign direct
investment (FDI) has, so far, been hard to come by, constrained
by weaknesses in the legal system, the banking sector and labor
unrest.
According to the Investment Coordinating Board (BKPM), FDI
approvals dropped by 88 percent, to $291.5 million, in the first
quarter of this year, compared with $2.44 billion in the same
period in 2001.
World Bank country director in Indonesia Mark Baird
acknowledged that some high-profile commercial disputes involving
foreign firms would hurt investment sentiment in the country.
"It was noted of course that these cases, which gained wide
exposure in the international press, did not help Indonesia's
image before foreign investors....," Baird told reporters.
Therefore, legal and banking reform, corporate restructuring,
reliable public administration and sound industry and investment
policies overall are needed to remove barriers to economic growth
and promote development spending for the poor.
"Cutting back on development spending in the state budget may
achieve a short-term objective of lowering the deficit, but it
reduces the country's growth potential," the statement said.
The state budget has been reducing its allocation for
development spending, mostly due to the huge burden resulting
from debt repayments.