World Bank: Indonesia Could Do Better
Indonesia could end up emerging relatively unscathed from the economic crisis if the government continued to carefully manage the economy and there were no more external shocks, World Bank country director Joachim Von Amsberg said on Monday in an exclusive interview with the Jakarta Globe.
However, while Indonesia was doing well, emerging as a “confident, middle-income country,” significant challenges to encouraging real investment remained, he said.
Explaining how the World Bank viewed Indonesia, Von Amsberg said it was the bank’s opinion that Indonesia should no longer be seen as a developing country but rather a middle-income one. Although there was still poverty in the country and there continued to be imbalances in wealth and gaps in public services, there was evidence of an expanding middle class and increased wealth.
“In a way, Indonesia is becoming one of the quiet success stories in Southeast Asia. You see this in the little things, like businesses moving events to Jakarta because the country is increasingly being seen as politically stable.”
Indonesia had enjoyed years of growth since 2002, and in 2005 real annual per capita GDP growth - the growth divided by the total number of households in the economy - exceeded the highs set in 1997, before the peak of the Asian crisis, bank data showed.
Now, even in times of the global economic downturn, it was evident that the country could manage the situation, Von Amsberg said.
“An example, of this confidence was the government going to the market to raise money [during the latest economic crisis],” he said, with government only using emergency loans from development agencies as a backstop of last resort.
Because it was not highly leveraged in international markets and did not rely as much as other countries on international trade, Indonesia could perform much better than countries like Singapore or Malaysia, which were far more exposed, Von Amsberg said, although he acknowledged that going from 6 percent growth to between 3 percent and 4 percent might not be easy.
“Of course, if there is another round of bank failures, especially in Europe, that could make the situation worse for countries like Indonesia,” he said.
While the country was doing well, it could do better, Von Amsberg said. Serious challenges remained in implementing large infrastructure programs, he said. One of the reasons Indonesia was not so badly affected by the crisis was because levels of real investment, international trade and borrowing remained low, he said, meaning that Indonesia found it difficult to benefit when times were good.
Investors were still wary of coming here because getting approval for things was very complex, and they found it difficult to see how they could make a profit, Von Amsberg said. Part of this was caused by the natural transition the country was making from being a centralized economy to one that had the freedoms of regional autonomy, he said. Corruption also played a part.
“Institutional fragmentation is holding things back. Big projects require so many players to agree on things, to fall in line, and that is often not possible.”
Still, even for thorny issues such as land acquisition for projects, there was evidence of positive change.
“It used to be that squatters were scared of the government. Now it’s the opposite. People are far more aware they have rights, they’re willing to stand up to the government. The only problem is that they still distrust the process - getting compensated for their land - this is one of the areas that still needs work.”
However, while Indonesia was doing well, emerging as a “confident, middle-income country,” significant challenges to encouraging real investment remained, he said.
Explaining how the World Bank viewed Indonesia, Von Amsberg said it was the bank’s opinion that Indonesia should no longer be seen as a developing country but rather a middle-income one. Although there was still poverty in the country and there continued to be imbalances in wealth and gaps in public services, there was evidence of an expanding middle class and increased wealth.
“In a way, Indonesia is becoming one of the quiet success stories in Southeast Asia. You see this in the little things, like businesses moving events to Jakarta because the country is increasingly being seen as politically stable.”
Indonesia had enjoyed years of growth since 2002, and in 2005 real annual per capita GDP growth - the growth divided by the total number of households in the economy - exceeded the highs set in 1997, before the peak of the Asian crisis, bank data showed.
Now, even in times of the global economic downturn, it was evident that the country could manage the situation, Von Amsberg said.
“An example, of this confidence was the government going to the market to raise money [during the latest economic crisis],” he said, with government only using emergency loans from development agencies as a backstop of last resort.
Because it was not highly leveraged in international markets and did not rely as much as other countries on international trade, Indonesia could perform much better than countries like Singapore or Malaysia, which were far more exposed, Von Amsberg said, although he acknowledged that going from 6 percent growth to between 3 percent and 4 percent might not be easy.
“Of course, if there is another round of bank failures, especially in Europe, that could make the situation worse for countries like Indonesia,” he said.
While the country was doing well, it could do better, Von Amsberg said. Serious challenges remained in implementing large infrastructure programs, he said. One of the reasons Indonesia was not so badly affected by the crisis was because levels of real investment, international trade and borrowing remained low, he said, meaning that Indonesia found it difficult to benefit when times were good.
Investors were still wary of coming here because getting approval for things was very complex, and they found it difficult to see how they could make a profit, Von Amsberg said. Part of this was caused by the natural transition the country was making from being a centralized economy to one that had the freedoms of regional autonomy, he said. Corruption also played a part.
“Institutional fragmentation is holding things back. Big projects require so many players to agree on things, to fall in line, and that is often not possible.”
Still, even for thorny issues such as land acquisition for projects, there was evidence of positive change.
“It used to be that squatters were scared of the government. Now it’s the opposite. People are far more aware they have rights, they’re willing to stand up to the government. The only problem is that they still distrust the process - getting compensated for their land - this is one of the areas that still needs work.”