Report on Indonesia

The 1997 World Bank Report on Indonesia, titled Indonesia sustaining high growth with equity praises the country's economic fundamentals but also strongly cautions the significant risks ahead, especially those related to external balance with rising private foreign borrowings.

The report, issued here yesterday, will serve as the main briefing on the latest Indonesian economic situation for the creditors grouped in the Consultative Group on Indonesia (CGI) which will meet in Tokyo in the middle of next month. The World Bank -- the coordinator of the CGI creditor consortium -- reminded the government of the urgent need for a more vigorous pace of deregulation measures and for consistency and high discipline in the enforcement of previous reform packages.

Slightly different from the 1996 report, the latest report addresses macroeconomic development and future growth prospects and devotes much attention to three sectors: human resource development (education, health); hard or physical infrastructures (power, telecommunications, transportation) and soft infrastructures (incentive framework, business practices, legal and institutional arrangements).

Most of the policy recommendations are not new, but the repetition of similar suggestions already made in previous annual reports, reemphasized with higher urgency.

The latest report, for example, stresses the urgent need for better governance and an improved legal system. It highlights the importance of good governance in reducing the cost of doing business, sustaining investor confidence, maintaining international competitiveness and improving equity.

The World Bank highlights what the general public, particularly businesspeople, have long complained about: the very small improvements made in the complex web of domestic restrictions, fees and levies. It also highlights the widely held perception that the invisible costs of doing business in Indonesia are very high. This reminds us of one of the main themes of the election campaign by the three political parties last month -- the eradication of corruption.

The government was once again warned of the great dangers of policy inconsistency and the seemingly slackening pace of deregulation measures. The World Bank also took serious note of slippage in the implementation of reform measures already launched, showing that 800 of the announced tariff cuts were not implemented on schedule and deregulation in some sectors was made rather meaningless by new restrictive rulings.

It is not our intention to paint a bleak outlook by citing all of the warnings. In fact, it is such policy recommendations, besides the shiny figures and indicators, which make the World Bank Report a reliable reference to Indonesia's economic problems and prospects. No one has any doubt of the reliability of the quantitative and qualitative analyses contained in the report. After all, the World Bank resident staff in Jakarta is one of the bank's largest country offices in the world which in part reflects Indonesia's position as one of its largest borrowers.

Even though the annual report is prepared mainly for CGI members, private-sector analysts, bankers, portfolio and direct investors as well as credit rating agencies certainly appreciate such a comprehensive briefing. The report is a great help in keeping them posted of Indonesia's latest economic situation. For investors or bankers, the ability to reliably assess the economic situation of a country as large as Indonesia with over US$100 billion in foreign debts is very important in the current era of economic globalization.