World Bank calls for corruption fight

World Bank calls for corruption fight

Agence France-Presse, Jakarta

Indonesia's government should make a clear commitment to fighting corruption, collusion and nepotism to lay the foundations for sustained higher growth, the World Bank's retiring country director said Tuesday.

Mark Baird praised Jakarta's record in restoring macro- economic stability since he took over his post in 1999 but said progress in structural reforms had generally been disappointing.

"At the heart of the structural agenda is restoring the integrity and credibility of public institutions, especially in the civil service and justice sector," he told foreign correspondents.

Reforming public institutions to serve the people and improve the investment climate would take time, possibly a generation.

"We are not asking for miracles. But we do want to see a clear commitment to reform, backed up by concrete and consistent actions."

Baird said recent court decisions were "very hard to understand except in terms of a corrupt and probably incompetent court system."

The lack of judicial reform "remains the biggest gap in the reform agenda", he said.

Baird said corruption had been the World Bank's biggest challenge over the past three years. He said the government has asked the bank to halt an urban development project it was funding on Sulawesi island after "compelling evidence of collusion among bidders and inadequate project oversight."

The country director said that overall he remained cautiously optimistic about Indonesia's prospects.

He praised the government for taking tough decisions to cut the budget deficit, control the money supply and implement banking reforms but said maintaining fiscal discipline would become harder as the 2004 elections approached.

Foreign direct investment approvals in Indonesia plunged 42 percent in the first half of this year compared to the same period last year.

Baird listed five ways to improve the investment climate in the coming year: improving tax and customs administration, developing a balanced labor market; avoiding the "excesses" of decentralization; pushing ahead with privatization and the sales of assets held by the Indonesian Bank Restructuring Agency; and improving the regulatory framework for investment especially in infrastructure.

He called for more public debate to set an appropriate minimum wage, saying it was starting to cost jobs at its current level.

Baird said he was "cautiously optimistic" constraints on investment would be addressed.

"The potential for investment in this country is just so great, the money to be made is so great, that the government really does not have to do that much in these five areas to bring investment back.

"If it were to target where it is going to act, I believe it could accomplish this agenda easily in six to 12 months."

With steady progress in these five areas, coupled with continued macroeconomic stability and a credible start on long- term institutional reforms, Indonesia could attract enough investment to sustain annual growth of at least five to six percent.