Setting priorities to ensure RI's growth

Setting priorities to ensure RI's growth

Andrew Steer, World Bank, Country Director for Indonesia

The annual meeting of Indonesia's government and the country's
major international donors, which took place in Bali last week,
saw a picture of the country that is considerably more complex --
and quite different -- from the simple caricature often seen by
the outside world. Indonesia at the start of 2003 has come a long
way in a short time. The scale of this achievement gives
encouragement that real progress can be made on the large agenda
of reforms that remain to be tackled.

One indicator of the progress was that the financial support
required from donors was the lowest for many years -- and that
represents a success for the government (which has closed the
budget deficit and reduced its overall debt burden at the same
time) and for donors (who want to assist the country, but don't
just want to add to debt).

The government and donors have a mutual interest in bringing
debt levels down to a more manageable level, and we are working
together to achieve that outcome. Development cooperation has had
positive results here in the years since the financial crisis of
1997-1998. We now need to take a deep breath and push on to the
next, even more difficult set of reforms.

But it is important to understand what has been achieved,
because too often, such achievements are taken for granted, or
discounted because of protests or lost in the shadow of the
reforms yet to be tackled. They should not be.

Consider the progress first: Five years ago, Indonesia's
currency was plummeting, poverty was rising alarmingly, the
economy was contracting, and amidst this scene of crisis, the
country was enduring a political upheaval as the Soeharto period
came to an end.

This week, the Consultative Group on Indonesia met and
reviewed a more stable economy with modest budget deficit,
growing at 3 percent to 4 percent, with poverty rates having come
down from 27 percent in the height of the crisis to about 16
percent, public debt having declined from 100 percent of gross
domestic product in 2000 to around 70 percent, and a currency
that has settled and recently been strengthening. And amidst
this relative stability, the country is preparing for another
free election in 2004.

Five years ago, protests were suppressed, newspapers were not
allowed to report freely, and civil society groups were not
allowed to operate freely. Today, the Indonesian newspapers are
full of comment, criticism and analysis. Civil society groups,
from think-tanks to non government organizations make their views
known forcefully and publicly, as indeed they did within the
meeting room of the Consultative Group on Indonesia (CGI). People
are able to protest and express their views. What looks unruly on
international television should also be seen as important
progress in the growth of a free, democratic and dynamic
Indonesia.

Important too was the strong response of the Indonesian
government to the Bali bombings of Oct. 12. We held this CGI
meeting in Bali as a deliberate gesture of support to the people
of Bali and the victims of the awful attacks. More than one donor
urged the government to "apply the same resolve shown in response
to the bombings" to the formidable challenges lying ahead.

Fundamental weaknesses still exist, and they must be tackled
if investment is to return -- for without investment -- both
local and foreign -- there can be no sustainable long-term growth
and poverty reduction.

The stability which has allowed the economy to register
smaller deficits and lower borrowing requirements is vital for
international confidence in Indonesia. Just as the financial
collapse shook confidence in the economy, so the Bali attacks
shook confidence in the country as a whole.

Continued serious attention to stability and security will be
essential if the confidence of investors and tourists is to be
restored, and if they and their money are to return here for the
benefit of Indonesia. Beyond the issue of stability and security,
however, donors called for accelerated efforts to deal with a
number of pressing issues:

o Reform legal and judicial institutions, so that Indonesian
companies, investors and citizens can have their rights protected
in a transparent and predictable system. This will involve a
serious effort to deal with corruption, especially in basic law
enforcement, and in the operation of the courts and the customs
service.

Widespread corruption in these areas and elsewhere remains a
serious impediment to investment, as well as being an
infringement on the rights of ordinary people. Not enough has
been done in this area, and what little progress we have seen has
been insufficient to make a real difference;

o Deal with illegal logging, which has seen precious forest
plundered, with local people's right violated, and only the
illegal loggers making money. Effective management of logging
will require more control and monitoring of the military and
police, who are reported to provide support to illegal loggers,
as well as more coordinated efforts from all law enforcement
agencies;

o Restore investment in health and education, as fundamental
building blocks of sustainable growth and poverty reduction;

o Invest in infrastructure, especially power, to avoid
shortages which could limit growth. Important here will be to
create an environment in which private investors will return to
invest in infrastructure, since the public sector will not be
able to bear the entire burden itself.

There is more, and in each area, there is much that needs to
be done. This is not a wish list of nice ideas. These reforms are
vital if Indonesia, having come so far, is not to falter. Three
to four percent growth is good, but it is not enough to provide
jobs for people who want work.

The international community, represented in the CGI in Bali,
believes that Indonesia can -- and for its own sake, must -- deal
with these outstanding issues. Indonesia's performance over the
past five years shows that success can be achieved, even in
difficult areas.

The continuing high levels of poverty, the lack of productive
investment, and the need for steady, stronger growth, show what
is needed. We stand ready to support the people of Indonesia in
the next phase of this important work.

A shorter version of the above article earlier appeared in The
International Herald Tribune.