WB calls for more transparency

WB calls for more transparency

JAKARTA (JP): The World Bank is urging Indonesia to tighten
its fiscal and monetary policies and introduce more transparency
and competition in all sectors to minimize the risks of
overheating and a fall in investor confidence.

In its latest annual report on Indonesia's economy, the World
Bank stressed that maintaining investor confidence is even more
crucial now than ever to cope with the estimated increase in the
current account deficit.

"Sooner or later, confidence falters in countries with large,
increasing current account deficits," cautions the report, which
was distributed yesterday morning to the government and
Indonesian creditor members. In addition, for the first time in
its 25 years of publication, the report was introduced to the
mass media later in the afternoon.

The World Bank projects that the deficit in the current
account of Indonesia's balance of payments will increase to
US$8.8 billion in the current fiscal year 1996/97, beginning last
April, to $10.7 billion in 1997/98 and $11.7 billion in 1998/99.

The 121-page report, which is supplemented with a statistical
annex, contains the standard macroeconomic analysis, charts out
the unfinished agenda of deregulation and, for the first time,
includes development issues in the eastern region.

The Indonesian government early this week revised upwards the
estimate of its current account deficit in fiscal 1996/97 from
$6.9 billion to $8.7 billion because the projected growth in
imports turned out to be too low and growth in exports too high.

Dennis de Tray, director of the World Bank Resident Staff,
while introducing the report at a news conference yesterday,
stressed another reason besides the strong pressures on the
balance of payments, as to why the maintenance of prudent
macroeconomic management is even more crucial now than ever.

De Tray noted that the international community would be
watching Indonesia more closely in view of the upcoming general
elections next year, the recent passing away of Mrs. Tien
Soeharto and the succession of the national leadership in 1998.

"They will be asking more questions," added De Tray, who was
accompanied by World Bank economists James A. Hanson and Timothy
Condon, who is the leader of the team which prepared the report.

Budget surplus

Among the fiscal policies recommended by the World Bank are a
further increase in the state budget surplus to as large as 2
percent of the gross domestic product, raising fuel and
electricity prices, forestry fees and property assessments for
the collection of property tax, reducing public spending on power
generation and telecommunications, slowing the growth of
personnel spending, developing better sources of non-tax revenues
(service or user charges) and further speeding the prepayment of
foreign debts.

"Prudent policy is to contain domestic demand -- consumption
and construction -- so that growth in consumer goods and
intermediate imports slows in order to accommodate higher capital
goods imports," the report says.

The report estimates a high rise in capital goods imports as a
result of the dramatic increase in both domestic and foreign
investments.

"Telecommunications equipment imports alone will be a big
bubble within the next two years," noted De Tray in referring to
the coming massive telecommunications expansion by state and
private operators.

The World Bank highly praises Indonesia's robust economic
growth as one of the highest among the developing countries, but
it cautions that the quality of growth has now become an issue.

"The general conclusion is that the quality of growth could be
improved significantly through the introduction of more
transparency and competition," the report says.

The report observes that deregulation has led to the rapid
growth in the Gross Domestic Product, but deregulation has
bypassed a number of commodities administered by the National
Logistics Agency (Bulog) and their distributors, petrochemicals,
the automotive sector, forestry and strategic industries.

"Financial deregulation has increased access to credit, but
large classified loans by state banks to large borrowers and
violations of the restrictions on related group lending suggest
that the financial system sometimes benefits insiders," the World
Bank says.

The report suggests that Indonesia's creditor consortium --
the Consultative Group on Indonesia -- which will meet in Paris
in the middle of next month, commit official assistance at an
amount at least similar to last year's pledge ($5.3 billion).

Official aid, the report argues, will improve the structure of
external finance and reduce Indonesia's vulnerability to the risk
of sudden shifts in volatile private capital flows. (vin)

Report -- Page 9