Stable RI economy not enough: WB

Berni K. Moestafa, The Jakarta Post, Jakarta

A stable Indonesian economy is not enough to generate the investment needed to effectively fight poverty, because investors are also looking for legal certainties and a better investment climate, according to the World Bank on Wednesday.

World Bank country director Mark Baird said Indonesia had done well in maintaining macroeconomic stability, which he said, was essential to attract investment.

"But investors are also looking for more fundamental reforms to strengthen the rule of law, protect property rights, provide an effective judicial system, and reduce corruption," Baird said in his speech before a conference on social development, held by the World Bank and the Association of Southeast Asian Nations (ASEAN).

Based on World Bank estimates, at least 30 million Indonesians live below the poverty line.

"Indeed, the majority of Indonesians are poor or vulnerable to becoming poor," he said.

Baird said to fight poverty, economic growth is essential.

Every year, a further two million people become economically active, creating a need for more jobs, he said.

Economists said Indonesia's economy needed to grow by five to seven percent a year if it was to absorb the new jobseekers.

Last year, the economy is estimated to have grown by only 3.5 percent, with the same rate expected for this year or four percent at best.

Investment spurs economic growth, but the outlook for new investment has been mixed so far.

Foreign investors have kept away in droves because of the country's highly unpredictable business climate.

That can be blamed on the legal uncertainties stemming from a weak judicial system, and authorities who often fail to impose law and order.

With the global economic slump, the government expects little from foreign capital to generate economic growth.

The state budget, shouldered with massive payments on subsidies, and foreign and domestic debts, has long lost its stimulating power in the economy.

Only local private investment is seen growing, albeit slowly, as most of the banking sector has still a long way to go before it recovers to similar conditions prior to the 1997 economic crisis.