Fri, 24 Jan 2003

Toward better economic growth and justice

Dorodjatun Kuntjoro-Jakti, Coordinating Minister for the Economy, Jakarta

Now let me turn to the agenda for 2003.

The government's program for 2003 is based on the action plan we presented to the House of Representatives last year.

In brief we expect to shift our focus from macroeconomic stability that was the focus in 2002 to macroeconomic issues in 2003.

More specifically we have identified three program priorities.

The first is increasing investment, exports and employment. The second is continuing to reduce the burden of foreign and domestic debt. And the third is increasing investment in infrastructure to support accelerating economic growth.

A more extensive description this program can be obtained from the Coordinating Ministry's website. The Minister of Finance, the Minister for State Owned Enterprises, and the Chairman of the Investment Board (BKPM) will fill you in on efforts to improve the investment climate, reduce debt and accelerate infrastructure in their remarks later this morning.

But this effort has to be aimed at something, and that something is the elimination of poverty and the threat of poverty for all Indonesians.

This is no simple task, it combines effective macroeconomic policy that accelerates growth and controls inflation with government expenditure programs to improve education, health and infrastructure and an assessment of the role that government policy in whatever area may have on poverty. I am pleased to report that we have made significant progress on a Poverty Reduction Strategy and this should assist us in addressing these goals by mainstreaming our poverty focus.

However we have to admit that reducing poverty or even holding our own is going to be difficult this year. The bombing on Bali has put in jeopardy the livelihoods of hundreds of thousands of people and will increase poverty here and in the rest of Indonesia, perhaps dramatically especially with continuing uncertainty in the international environment and relatively modest growth here in Indonesia.

The Coordinating Minister for Social Welfare will address the situation on Bali and our attempts to deal with it. However, I want to emphasize three things.

First, we need the help of the international community in dealing with the aftermath of this serious tragedy. Second, in addition to humanitarian and development assistance we need help upgrading security, including training and equipment for the institutions involved. And third, we ask that you to consider carefully the merit of the travel warnings in place.

I am sure that you agree that the security situation here on Bali is substantially improved, that we have done a remarkable job in tracking down the terrorists involved. We know the importance that all nations place on the lives of their citizens.

However there is an economic dimension to the fight against terror.

With your assurance that it is now, with the proper precautions, okay to return to Bali and Indonesia. The economy on this island and all Indonesia can grow faster, providing us the breathing space to advance the difficult and far reaching reform agenda ahead.

As I have indicated reforms have not proceeded evenly. We are pleased with our macroeconomic progress but know that we can not sustain it if we do not make progress on governance.

In fact two of the most difficult areas for reform areas are on the table this CGI including the justice sector and forestry. While thus far we have made disappointing and uncertain progress in reforming our legal institutions we believe that the pace of reforms is picking up.

I think you will be interested in our presentation of an interesting institutional audit being undertaken by the Supreme Court, and of developments with the Judicial Commission.

Unfortunately reforms in forestry sector have proven to be extremely complex and difficult as they cross-cut interests in the central government and the regions. We must persevere in finding practical and effective ways to deforestation which has been accelerating and even begin to repair the damage. The key of course is to prevent illegal logging.

It is now clear that this will require looking at the structure of the logging industry, the regulations and their implementation. The Ministry of Forestry will present the priority programs required to do this and the Coordinating Ministry will work with them to develop an inter-agency taskforce [forum] in this important sector.

Progress in the area of decentralization has on the whole been better. For example, we are pleased that we have received almost all regional government budgets.

This should give us a better picture on how government resources are being used as regional governments fund development priorities subject to the oversight of their own legislatures and citizens.

I also expect to continue our dialog on on-lending, local regulatory regimes and procurement improvements. We need to do more on regional barriers to trade and investment but we believe that the local governments are learning the importance of responsible policy here.

We intend to accelerate this process with the introduction of improved an improved rating system that will allow regional governments to assess their performance relative to their peers. This should assist the private sector and regional governments in finding a better and perhaps more transparent balance between revenue needs and business and consumer interests.

In another session tomorrow morning, the National Development Planning Minister and the Finance Minister will look at the issues in aid effectiveness.

It is clear that this government and the next one are going to suffer from relatively limited resources. The key is to make the best of them. This goes beyond aid effectiveness to the use of all government resources. We need to use our own and the resources we receive from you more effectively, we need to monitor them more closely, and evaluate what has been achieved better.

Tomorrow we will share our thinking and programs in this area and look forward to a dialog on this topic.

Finally let me add my appreciation to those of you who have been working with us on debt swaps. The programs here are win- win.

We are delighted to reduce our debt stock as that is one of our key programs. At the same time this program allows your governments to dedicate the resources saved to critical programs that you support. For example we now have a program with the German government that exchanges debt liabilities for increased assistance to basic education and we are working on another such project with them. The government would like to continue and even expand this effort in the year ahead.

From a macroeconomic perspective, despite a number of setbacks and remaining areas of concern, last year's economic outcome was positive and puts us in a position to push ahead with a microeconomic agenda designed to reduce "high-cost" economic barriers and thereby improve the investment climate. However, we have to be realistic.

The government's resources, financial and human are scarce, and we are not as good at making our case to the public as we would like. It does us no good to promise, nor for you to ask for more than we can deliver. We need to set realistic targets, targets that recognize that 2003 is the run-up to an election year.

We expect that by mid year the world economic situation will begin to clear and that investment and growth will continue to pick up but there are no certainties. Government policies are going to be subject to a political microscope.

We need to prioritize our efforts carefully, focus on the most important areas for improvement and then execute the reforms needed to keep momentum. To do this we will need to work effectively with our friends in the CGI and improve coordination. We ask for your continued financial support and assurance as Indonesia moves forward on its reform agenda.

The above is the minister's address to the two-day meeting of the Consultative Group for Indonesia which opened in Nusa Dua, Bali on Wednesday.