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.