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