WB urges RI to restore confidence in 6 months

WB urges RI to restore confidence in 6 months

Berni K. Moestafa, The Jakarta Post, Jakarta

The World Bank urged the government on Wednesday to restore
business confidence in this country within six months, as
opportunities to revive that confidence was running out quickly.

The World Bank Vice President for the East Asia and Pacific
Region, Jemal-ud-din Kassum said investor confidence had fallen
sharply on the heels of a deteriorating global economy.

"We at the World Bank believe that Indonesia now has a narrow
window of opportunity over the coming six months to restore that
confidence." he said in his opening speech before participants of
the Consultative Group on Indonesia's two-day meeting in Jakarta.

Kassum chairs the meeting of the CGI, which groups together
Indonesia's major donor countries including multilateral donors
such as the World Bank, and the Asian Development Bank (ADB).

Indonesia hopes to secure some Rp 35.4 trillion (about US$3.32
billion) in new loans from the CGI, to help finance next year's
state budget deficit.

"This immediate opportunity needs to be seized urgently by
Indonesia's political leaders to lock in macroeconomic stability,
restore momentum to the policy reform agenda and move decisively
to reduce poverty and vulnerability," Kassum said.

Deteriorating confidence in the country's investment climate,
has been a constant barrier to revitalizing the economy since it
first plunged into crisis in 1997.

As a result, a World Bank report states that more than half of
Indonesia's population of over 210 million have descended into
poverty, living at less than $2 a day.

However, efforts to reverse this situation through economic
growth may rest more on the private sector than the government.

As budget constraints limit government spending capacity, the
economy must turn to the private sector for growth.

Even within Indonesia, a weak banking sector withholding
affordable funding sources, is causing domestic investment to run
scarce.

For this reason instilling confidence among foreign investors
is vital, according to the World Bank.

Kassum gave no explanation for his six-month timeframe, but
made it clear that uncertainties on the global front are sure to
cut short any confidence remaining among foreign investors.

"For the first time since the onset of the crisis, the huge
domestic risks that Indonesia faces are now covered by a new
layer of equally dangerous external risks," Kassum explained.

He was referring to the Sept. 11 terrorist attacks in the
United States that accelerated the slump into a global recession.

In addition to a scarcity in foreign investments, the downturn
also means a drop in export revenues, which last year, along with
consumer spending, had kept the country's economy afloat.

According to the World Bank, one major barrier to the return
of foreign investment was the country's weak legal system.

The issue of corruption tied to legal reforms formed part of
the discussion in the CGI meeting for the first time.

In the past few years there have been a string of legal
disputes involving foreign investors, which have had a negative
impact on market sentiment.

"We will look closely at the justice sector, a major factor in
the slow recovery of investment levels," Kassum said.

In response to the foreign criticism, Minister of Justice,
Yusril Mahendra questioned foreign lenders' perceived double
standard, stating that they show interest in legal consistency,
but on the other hand there have been cases where foreigners,
have interfered with legal proceedings to benefit one of their
own companies.

"They sometimes try to use their political and economic
influence to obstruct legal proceedings," he said in an apparent
reference to a Canadian insurance company which had the
government halt an investigation.

The government, he said, must refrain from meddling in legal
proceedings, as it was asked to in the case of the Canadian-based
life insurance firm PT Asuransi Jiwa Manulife Indonesia.

"I told them that this is a matter for an independent court,"

Yet it is the court's independence, and lack of checks and
balances, that has often been questioned by foreign investors.

The World Bank lambasted the country's judicial system as
carrying a "systematic bias against foreign investors".

It said the impression among foreign investors was that
acquiring assets from the government was difficult and risky.

2002 external financing needs and the CGI request

(US$ billion):
Budget deficit, 4.7;
Domestic finance, 2.6;
External finance needed, 2.1;
Payment of external debts, 4.9;
Total external financing needed, 7.0;
Non CGI financing*, 3.7;
CGI financing, 3.3;
Total CGI financing requested, 3.3-3.5

*Includes export credits as well as financing from other sources
including the Paris Club rescheduling.

Source: World Bank staff estimates