The World Bank in Indonesia: What else to be done?
The World Bank in Indonesia: What else to be done?
This is the second of two articles based on a presentation by
Indonesia's World Bank Country Director, Mark Baird, at a seminar
on Indonesia's recovery held by the Kapital business tabloid in
Jakarta on May 11.
JAKARTA: It is still too early to say what the new Country
Assistance Strategy will look like. A lot will depend on the
priorities and preferences of the new government.
But it is clear that our role and mandate is to support
programs that reduce poverty. And initial discussions suggest
that the following themes will play an important role in any
poverty-reduction strategy:
* Economic recovery and sustained growth. Worldwide experience
teaches us that sustained growth is essential for sustained
poverty reduction. That is why we, together with the
International Monetary Fund, have put so much emphasis over the
past two years on restoring macro stability -- and pushing ahead
with bank and corporate restructuring.
We are starting to see the benefits in terms of economic
recovery and lower levels of poverty. But much more needs to be
done. We also need to think about how to sustain this growth over
the medium term. That will require investment -- in both human
resources and physical infrastructure. It will also require
closer attention to protecting the natural resource base of this
country, including forests, water and land.
* Equal opportunity and access for the poor. Even with
stronger growth, there is no guarantee that the poor will be able
to take full advantage of the new opportunities for employment
and income generation.
They need access to basic education and health services, as
well as basic infrastructure such as water, sanitation and roads.
This requires a reorientation of public expenditures, and aid-
financed programs, with a renewed focus on delivery of basic
services to the poor, especially in poorer regions of the
country.
The poor also need to be empowered and given a voice so that
they can have a say in their own development programs. Subsidies
which don't serve the poor should be phased out. Social safety
net programs, introduced during the crisis, can also be scaled
back. But some core programs should be maintained, to help poor
families cope with vulnerability to unexpected changes in
fortune.
* Good governance and anti-corruption. Good governance is
central to improving confidence in public institutions and
development programs. The new government is committed to fighting
corruption. But progress has been painfully slow.
It is widely recognized that judicial reform is at the heart
of any governance agenda. This is essential to restore confidence
in the courts -- so that contracts can be enforced and those
involved in corruption can be held accountable.
There is also a need for fundamental reforms in the civil
service. Higher salaries alone will not reduce corruption without
accountability.
Decentralization needs to be managed carefully, and local
governments need to gear up quickly to handle their new
responsibilities -- not doing so will increase the risk that
quality of service delivery will actually decline.
Procurement systems and financial management need to be
strengthened at all levels of government.
Not all of these activities require lending from the World
Bank. Indeed, some of our most important contributions to this
country have come through our policy analysis and advisory
services.
We have raised difficult issues with the government, from
import monopolies to connected projects, well before it was
possible to discuss them in public.
And we continue to work on a range of policy issues, from debt
and public expenditure management, to sector strategies for
health and energy.
We are currently completing a poverty assessment, which will
improve our understanding of the current situation and help lay
the groundwork for post-crisis poverty programs.
All of our economic reports are now made available to the
public. And we increasingly facilitate public discussion of
policy issues. Perhaps the most notable example over the past
year has been in the forestry sector, where we have worked
closely with donors and civil society groups to increase
awareness of the problems of illegal logging and the need for
more community involvement in forest management.
The World Bank is also actively involved in aid coordination.
We convene regular donor meetings in Jakarta on topics of mutual
interest (e.g., forestry, judicial reform).
We also chair the Consultative Group on Indonesia (CGI). The
purpose and format of this group has changed dramatically in
recent years. The focus now is much more on improving the
effectiveness of development assistance.
The February meeting of the CGI was held in Jakarta for the
first time, and included representatives from civil society. The
government team was remarkably open in discussing the challenges
they face, from reducing debt to controlling corruption and
managing the forests.
Donors responded with a strong pledge of financial support --
including a significant increase in grants. There was particular
interest in the proposed governance partnership, sponsored
jointly with the United Nations Development Program and the Asia
Development Bank. This will help coordinate grant funding and
provide technical assistance to support governance reforms.
We expect lending by the World Bank to decline from the
exceptional levels of the past few years. We have pledged to
disburse $1.5 billion during the current fiscal year, but this
may well be reduced in line with the lower borrowing requirement
approved by the House of Representatives.
In subsequent years, as the economy recovers and the fiscal
position improves, our general budget support will be phased out.
Instead, we will shift back toward financing development programs
focused on poverty reduction.
This will be supported by International Development Assistance
(IDA) financing (0.75 percent service fee, no interest, and 35
years maturity, with 10 years grace) over the next couple years.
The International Bank for Reconstruction and Development
(IBRD) lending levels will initially be constrained by
Indonesia's debt servicing capacity and our own exposure ceiling.
However, there may be scope for greater access to IBRD
resources in later years. In our view, IBRD loans (effective
interest rate of 6 to 7 percent, compared to commercial rates for
Indonesia of 10 to 12 percent for much shorter maturities) remain
a relatively cheap and effective source of financing for
development programs.
So, in conclusion, let me just say that our program in
Indonesia is changing to reflect the new realities and needs of
this country -- as well as the changing role of the World Bank in
the global community.
However, as was graphically illustrated by the recent
demonstrations in Washington, our role is still not well
understood. I find the same misunderstandings as I travel around
Indonesia.
Many people still see us as a commercial bank, serving the
interests of the West, rather than as a development agency,
committed to poverty reduction.
In response, we have started to become much more open about
our activities. Under the World Bank's Disclosure Policy, most of
our documents are now available to the public. You can find out
more about our Indonesia program on our website
(www.worldbank.org) or by visiting our Public Information Center
in the Jakarta Stock Exchange Building (Tower II, Floor 13).
As we become more open about our activities, we also have to
be more humble about what we can achieve alone. Contrary to the
views of some in Jakarta, we are a small player in Indonesia.
We don't presume to have all the answers. Nor do we look to
the government to solve all of Indonesia's problems. Often the
solution lies in what the government should not be doing -- and
providing space for others (whether it be the private sector,
NGOs or communities) to get on with the job.
The future of this country lies in the hands of the Indonesian
people. However, we will do whatever we can to support your
efforts to rebuild this country -- and ensure that all,
especially the poor, share in the benefits of sustained
development.