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.