RI economic reform on track, World Bank says
Zakki P. Hakim and Urip Hudiono, The Jakarta Post/Jakarta
The Consultative Group on Indonesia (CGI), a grouping of major foreign donors, was satisfied with the way Indonesia's economic reform was going, especially on efforts to improve the investment climate, a World Bank executive says.
Citing the reform process as "on track", Vice President Jemal- ud-din Kessum said on Friday that, "The government is very committed to improving the business climate, we have seen strong anti-corruption efforts recently."
He was speaking at a press briefing after a CGI mid-year meeting at the Borobudur Hotel. Aside from the World Bank, the CGI was also represented by Ambassadors of the United States, Japan, Canada and Britain, who also represented the European Union.
"I am quite satisfied with the direction and pace to reform business climate, but there are still challenges that the government needs to face," he said, adding that the government must provide better strategy or coordinated policy environment conducive to private investment.
Kessum did not provide detailed examples of the progress, but a presentation of an Investment Climate Monitoring Survey at the meeting provided some clues. The survey was initiated by the World Bank, implemented by the University of Indonesia's Institute for Economic and Social Research (LPEM-UI) and funded by the Netherlands government.
The words of encouragement come amid critics at home over the relatively slow pace of economic reform. Investment has been held back in part by a high cost economy due to rampant corruption.
The open unemployment rate, for instance, continued to rise to 9.86 percent last year despite the country enjoying economic growth of 5.1 percent.
"Speaking for the World Bank and also for the members of the CGI, we would prefer to see a systematic approach to this (improved investment climate) that ensures quality investment for the better public interest, rather than a hasty approach that leads to poor quality investment," he said.
Elsewhere on the survey results, it is noted that corruption has dropped sharply, as bribes to government officials as a share of production cost declined from 10.8 percent in 2001 to 6.4 percent in the first semester of this year from the corresponding period last year.
M. Chatib Basri of LPEM-UI said that competition among local administrations to attract investment had apparently reduced informal or illegal fees demanded by local officials.
"Decentralization has been seen as only bringing problems, but now we can see some real benefits out of it," Chatib, who is also an advisor to Coordinating Minister for the Economy Aburizal Bakrie.
However, as there was no such competitive pressure at the national level, the survey revealed that inefficiency and corruption remained a major problem in customs and in the tax office.
The survey, involving 600 medium and large manufacturing firms in five major cities, showed that 82 percent of them have to make informal or illegal payments in their interactions with the customs. The informal fee amounted to 2.3 percent on average of their import value, recording a total loss of as much as $800 million annually, it said.
On value-added tax refunds, 57 percent of respondents said that they had to make informal payments and negotiate with tax officials in order to claim a VAT refund.
The survey also said it took five months to receive the refund, with respondents only receiving on average 87 percent of the net amount claimed.
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