World Bank report

World Bank report

The World Bank's annual report on Indonesia's economy, which
previously had always been kept confidential, was introduced last
week to the mass media, only hours after copies were given to
members of the Consultative Group for Indonesia, the country's
consortium of creditors.

That the report was made available to the public does not,
however, mean that its analysis of Indonesia's economy and
government policies had been toned down so as not to embarrass
the government. Instead, the report remains consistently
critical, yet objective in its analysis, giving credit where
due, bluntly citing any mistakes or policy inconsistency and
prescribing policy recommendations. It appears the decision to
make the report public was based partly on the World Bank's 1994
information guidelines that all economic and sector reports
received by the bank's directors be made available to the public,
and partly due to the mature relationship between the bank and
the government.

The latest annual report, which will be discussed at the next
annual meeting of the Consultative Group for Indonesia in Paris
next month, follows the format of previous ones. It contains the
standard analysis of the most recent economic developments,
provides warnings about any problems the bank sees as most
urgent, charts out the remaining agenda for the country's
economic and bureaucratic reform process and addresses special
topics -- this time, the issues of the labor market and the
development of Indonesia's eastern region.

The World Bank fully shares the government's great concern
about the country's economic overheating and lauds the measures
of sound macroeconomic management being pursued. It nevertheless
calls for tougher fiscal and monetary measures to ensure longer-
term, sustainable growth. The report reaffirms the crucial
importance of maintaining domestic and foreign investor
confidence in order to sustain capital flow which is vital for
coping with the unavoidable, widening current account deficit in
the balance of payments within the next three years. Investors
will remain confident in the long-term prospects of the economy
if they operate under policy stability and predictability.

Repeating the message of its previous report, the World Bank
calls for more transparency in the awarding of job contracts and
in the privatization of state companies as well as in the
management of the country's assets -- land, water and forests --
and in the financial system. It again urges speedier measures to
remove monopolies in several commodities and nontariff barriers
either to imports or exports of a number of goods.

The report is generally quite positive regarding the
macroeconomic management being pursued by the government. The
World Bank's concern lies in the policy inconsistencies in
several sectors which it fears might increase, instead of lessen,
in view of the general election next year.

The biggest difference remaining between the World Bank and
the government lies in the speed in which the remaining agenda of
the reform process should be accomplished. The difference is, to
a certain extent, simply normal. The government naturally claims
to know more than the bank about which reform measures are
immediately possible without affecting social, political and
economic stability. On the other hand, the bank sees things
mostly in terms of the urgency for strengthening the
competitiveness of Indonesia's economy amid the increasing
process of economic globalization.