RI answers WB's call for institutional reform

Berni K. Moestafa, The Jakarta Post, Jakarta

The World Bank puts institution building at the heart of sustainable development in a report signaling the possibilities Indonesia's economic reform program presents for building better institutions, and the risk if the country fails to seize the opportunity.

Sustainable development hopes to align global economic growth on one side, with the decline in world's assets and the growing population on the other.

"Development is sustainable if the rules of the games are transparent and the game is inclusive," said the opening sentence of a recent report by the bank titled the World Development Report 2003.

The world's assets -- be they physical, financial, human, social, or environmental -- are limited and thus need better management of their portfolio, the report said.

It said that assets overexploitation and shortfalls could be resolved by improving markets and the institutions behind them.

"Many appropriate policies are known, but not implemented because of distribution issues and institutional weaknesses," it said. "Competent institutions pick up signals, balance interests, and execute agreed-on decisions."

Such institutions may be state owned, private or independent. To increase their competence, the report added, the poor and disenfranchised should be given access to decision making.

The message comes at a time when Indonesia's economic reform program demands sweeping changes on how institutions here run this country.

Economic reforms have began since before the demise of Soeharto's authoritarian regime in 1998.

His fall led to a more aggressive take on Indonesia's economic malaise and the transition into a democracy. This has opened up the opportunity to reshape the country's economy with greater public participation. "When more people are heard, fewer assets are wasted," the World Bank report said.

Led by the International Monetary Fund (IMF), Indonesia's reform program aims to purge market inefficiencies and instill macroeconomic stability.

Although not tied to sustainable development goals and often criticized as even contradicting them, the IMF program also deals with institutional reform issues.

For instance, corruption is undermining the effectiveness of foreign loans that international agencies like the IMF or World Bank provide. Part of these loans are being used to fund projects related to sustainable development.

The IMF program, also known as the Letter of Intent (LoI), calls for an anticorruption committee, transparency in state asset sales and improvements in the country's judiciary.

Such structural reform programs are more the work of the World Bank and the Asian Development Bank (ADB). Still, their programs depend on progress with the LoI which the IMF leads.

Indonesia as the fourth most populous nation in the world, has much to gain from molding its economy into a more sustainable pattern.

Despite ongoing steps toward reform, environmental and social conditions have worsened.

Soeharto's downfall teared down institutional control over the market and other social aspects. Yet the resulting power vacuum also led to legal uncertainties.

Illegal logging, mining and fishing are worse than ever.

Widespread corruption within the country's judiciary undermines efforts to fight these illegal businesses and reduces foreign and domestic investor confidence in the country.

Analysts have said the pace with which the institutions were reforming is too slow to arrest the environmental decline.

So far foreign creditors and public pressure through the media have been the biggest driving force behind reform.

Non-governmental organizations have decried the lack of a political leadership from both the government and the legislature.

" ... a leader who takes steps to build stronger institutions would reap benefits from the stronger economy and the better environment only in the long run," said the report, adding: "this requires a stable setting with broad political support."