RI economic reform on track, World Bank says

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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