JP/13/WB

JP/13/WB

WB urges speedier legal and governance reforms

The Jakarta Post
Jakarta

World Bank country director Andrew Steer said on Tuesday it
was now time for the Indonesian government to take the political
resolve it had demonstrated in its sound macroeconomic management
and its prompt response to the terrorist bomb attack on Bali, and
focus on improving the investment climate, reforming the legal
system and developing good governance.

Steer said at a business luncheon that over the past five
years after the onset of the economic crisis, Indonesia had come
a long way in restoring macroeconomic stability and managing the
decentralization and democratization processes.

But it was now high time to move ahead with the next reform
agenda to improve the investment climate and speed up legal and
governance reforms, he added.

Sound macroeconomic management, as indicated by steady fiscal
consolidation, decreasing government debt burdens, initial
banking recovery and declining capital outflows, was one good
news about Indonesia these days, he said.

Continuing, he said other positive developments included
recent amendments to the Constitution, responding promptly to the
Bali bombing, implementing a cease-fire agreement in Aceh,
speeding up the pace of structural reforms, enacting the law on
the anti-corruption commission, finalizing a new reform program
with the International Monetary Fund, and initiating a poverty
alleviation strategy.

He warned, however, that the challenges ahead were not less
formidable.

The business luncheon was hosted by the Australia-Indonesia
Business Council, the American Chamber of Commerce and the
Association of Foreign Bank Branches in Indonesia.

In his presentation at the meeting, the country director
charted out Indonesia's development prospects, spelling out the
good and bad points.

Many of these points have been elaborated on in the latest
World Bank report on Indonesia, which was submitted at the recent
annual meeting of Indonesia's international creditor consortium,
the Consultative Group on Indonesia (CGI).

The main challenges within the investment climate, according
to Steer, consisted of corruption and bureaucratic inefficiency
-- notably within the tax and customs service, labor tension,
issues related to decentralization, erosion of basic
infrastructures, perceived insecurity and a mistrusted legal
system.

He declined to reply directly to a question as to whether the
government had the political will and capability to fight
corruption.

Meanwhile, he observed that it could be understandable if the
government, which had so far been preoccupied with restoring the
condition of its macroeconomy and managing the decentralization
and democratization processes, had not put judicial reform and
good governance at the top of its priorities.

"But it is now time to do so," he said.

He noted how corruption and bureaucratic inefficiency had
stifled investment, as it was now much more time-consuming and
costly to obtain business licenses for Indonesia than for other
countries. It took three times as much time and money to process
business licenses in Indonesia than in Thailand, and twice as
much than in China, he pointed out.

In addition, illegal levies accounted for 10 percent of the
revenues of small and medium enterprises, he revealed.

Steer especially recounted the gross inefficiency within the
customs service, suggesting that it may be time to return to the
pre-shipment inspection system that was launched in 1985 by then-
president Soeharto, which would strip the corrupt customs service
of its inspection authority.

Asked about the calls by politicians and Cabinet members to
end the IMF program in Indonesia, Steer replied that it is simply
not rational at this stage to get rid of the IMF.

"But I see it (the demand) as a healthy nationalist sentiment
if it leads to the right policies to enable the government to
make a graceful exit, graduate from the IMF program," he said.

The IMF five-year extended facility will end later this year
and there have been increasing political pressure for the
government not to renew the program.