World Bank seeks Indonesia's action on corruption
World Bank seeks Indonesia's action on corruption
SYDNEY (Reuters): Indonesia's new president may enjoy an economic honeymoon as deals with the IMF and the Paris Club creditors fall into place, but the World Bank wants to see clear steps on issues like corruption before increasing its aid.
Mark Baird, the bank's Indonesia country director, said on Monday he was hopeful the new government of Megawati Soekarnoputri would sign an IMF deal by end August, freeing up a $400 million tranche needed to restore investor faith in the ailing economy.
That in turn would pave the way for a "successful" September 10 meeting with the Paris Club of creditors on rescheduling US$2.8 billion in debt payments due this year, and for a gathering in November of the Consultative Group for Indonesia, a number of donors who last year pledged some $4.8 billion in loans.
"That I think is a sort of schedule of events over a six month period that hopefully will sustain the good news in the short term and in that sense extend the honeymoon period," Baird told reporters in Sydney.
"But it will leave open the question of how committed is the government to the more fundamental reforms."
Baird also tried to discourage any notion of further debt relief beyond what was already on the table with the Paris Club. Additional debt relief was neither needed nor desirable, he said.
The appointment of Megawati ended months of political chaos and brinkmanship as her predecessor Abdurrahman Wahid fought off lawmakers trying to oust him over his erratic 21-month rule.
The naming of her economic cabinet last week, which contained a good balance of private sector professionals and economists, further boosted confidence and was welcomed by the World Bank.
The developments may open the door to a revival of relations with donors and lenders, like the International Monetary Fund, which had soured as Jakarta's economic reform process stalled.
The IMF signed a draft letter of intent over the $400 million with Jakarta in July, subject to approval in Washington.
The Paris Club agreement is dependent on the IMF deal.
And the World Bank, which agreed to $422 million in new loans in June after slashing its aid from $1.2 billion in January, says it may restore the higher levels if the IMF funds come through.
But Baird said the bank needed to see two concrete steps before increasing its commitment in Indonesia.
The first was on "fiduciary control" -- the management of procurement and government audits. That may involve the setting up of an office of public procurement.
"This to us is very critical if we are to be satisfied and if our shareholders are to be satisfied that past problems with corruption are being seriously looked at," Baird said.
The other area was a reshaping of the government's poverty reduction strategy, away from targeted subsidies and towards a more general appreciation of the impact of policies on the poor.
Baird said good progress was already being made with a recognition that fuel subsidies do not help the poor.
He said further debt relief, as suggested by the Australian Foreign Ministry last week, was not a solution.
Indonesia should safeguard its access to international capital markets, be very careful about new borrowings, tackle corruption to make sure expensive loans do not go to waste and strengthen its future capacity for debt servicing, he said.
"The key is not to solve Indonesia's law and order problems today because it is not possible, or to have a bureaucracy that's not corrupt, to have a financial sector that works properly, because that is not possible," he said.
"The key is to show that the government is moving in the right direction and with that I believe there will be enough international goodwill and support to see them through the transition and into a sustainable period of recovery."