World Bank to fight Indonesian poverty with new vigor

World Bank to fight Indonesian poverty with new vigor

Mark Baird, a New Zealander, who became the World Bank
Indonesia Country Director on April 1, is now on his second
assignment in Jakarta. But the task and the work environment he
is facing is strikingly different from his previous one in 1986-
1989 when the country's economy enjoyed robust growth. In the
following interview with The Jakarta Post, the first one he gave
to a newspaper here, Baird charts out the World Bank's short and
medium-term programs in Indonesia and foresees the biggest
threats to the reform process that is crucial for the country's
economic recovery.

The following is excerpts from the interview:

Question: As a new World Bank country director for Indonesia,
what are your main priorities to work on in near and medium term?

My first priority is to catch up with what has happened in
Indonesia -- I was here 10 years ago. And a lot has changed, and
a lot is still the same. So, I have to find to learn what has
changed and what is still the same. And the biggest change for me
is the new spirit of openness that we see around you. I see it in
the press, I saw it when I visited the kampung, and had people
openly questioning the effectiveness of the social safety net
program, and questioning whether the money was reaching the right
people, and I see it in more broadly discussion with civil
society groups who raised very basic questions about governance
and corruption and the quality of government which are also
issues very much in the agenda of the World Bank. So for me it is
a very different environment from the one I saw 10 years ago

In terms of priorities now, I think it's probably better to
divide it into short-term and medium term. In the short-term, I
think we are working on three sets of issues. The first is
restructuring in the banking and corporate sectors. Secondly, we
are working very actively on improving the social safety net
program. And third, we are generally interested in the quality of
public expenditure in the budget, not just on the social safety
net, but also on other social programs. So, these are the three
immediate priorities we have.

If we look more to medium term, you need to worry, we need to
worry, the government needs to worry, Indonesians need to worry
about the quality of institutions, public sector and private
sector, which has to do with the whole governance and corruption
agenda. I believe one of the key issues in the next election is
going to be social justice and how do you maintain further social
justice while maintaining basically market friendly policy. And
there is always a danger that, in looking to medium term, one
forgets about maintaining basic macroeconomic stability. We have
learned in Indonesia and we have learned more generally in East
Asia, that macro stability has to be one everyday. You can lose
it very easily, and you can lose the credibility of policies very
easily. It's hard to get it back.

So, now that the government has succeeded in getting inflation
under control it is going to be important to keep that discipline
of macro policy. One of the biggest dangers, biggest threat for
poor people is inflation. So, one of the biggest contributions
the government can make to reducing poverty is keeping inflation
under control. The one group in society that cannot protect
themselves against inflation is the poor group, and particularly
groups that have no access to income opportunities. So, inflation
remains key to poverty reduction.

The signs this year are better than expected, but we are still
talking about growth of about zero to two percent, and this is
way below the 7 percent average in the past, and doesn't
compensate the 13 percent drop in growth during the crisis.

Indonesia has become one of the worst affected by the crisis,
one of the slowest to recover. Now there is some evidence, maybe
still very fragile, that there is a recovery. Maybe, Indonesia
can get through the election successfully, and it's a fair and
free election.

If the new government can continue to keep the progress on
banking, corporate restructuring, this economy could be poised to
recover more strongly than people expect. and if that can be done
with low inflation, you have the chance of helping the poor
survive the crisis and eventually get some hope back for the
future.

Will you proceed with approving and disbursing the social
safety net loans later this month despite the protests and
apposition against this program?

Let me explain what the World Bank will do. On May 18, the
World Bank will seek approval from the Board to provide a loan of
US$600 million in support of the reforms in the social safety net
program. This money will only be available to be disbursed once
the government has completed the progress, putting in place the
necessary safeguards. This one will necessarily be ready by May
18, and may take some more time, and only when that in place,
will the World Bank disburse the loan.

So, approval by the Board will not mean that funds will
immediately be disbursed. Secondly, the first trance is only $300
million, and then only after we have the chance to monitor well
those programs over time, will we release the second $300
million. I should also say that the social safety operation is
only one of four operations that will be approved by the Board on
May 18. The other three are $500 million policy reform support
loan, which is supporting improvement in the banking sector and
governance in general, including the recently approved anti-
corruption law, $300 million loan supporting changes in the water
sector, and $100m loan on urban property project.

Do you think those safeguard measures would be enough in
ensuring the success of the program?

I think there's been a lot of exaggerated information. But
there have been specific instances where people in kampung
complained about how the social safety net money has been used.
And those complaints have been forwarded to the government. And
we are actually insisting that actions be taken on those
complaints before we go ahead our operation. This is a very
healthy sign in Indonesia.

Indeed, one of the mechanisms we want the government to put in
place is a system of independent monitoring of the social safety
net program run completely by civil society groups. There will be
also a control group that will monitor information from both the
government and from civil society, verify the information and
ensure that complaints are addressed.

I have also to say that in every country, social safety net
program have a degree of abuse. It's inevitable. I'm not to
promise you that there will be zero abuse. That's the nature of a
program that's designed to provide quick relief to the poor
today. This is not a program to provide you sustained improvement
in income and development over time. That will need different
programs. But you can't wait, you have to act now. The government
acted quickly, put in place social safety net.

The period between the general elections in June and the
presidential election in November would be still relatively
uncertain. What will the bank do in the period and what will the
bank expect from the new government?

The World Bank will continue to work with the constituted
government of Indonesia. And you always have a government. That's
our official mandate that what we will do. We of course will be
very hopeful and the international community in general will be
hopeful that there will be a degree of continuity in policy. I
would hope that there is maybe some degree of uncertainties after
the election, I would hope that the constituent part of any
government would ensure that there is a continuity in economic
policy. And that's the assumption that we have to work. In the
case of social safety net, of course, we have the opportunity to
review this over time and make a judgment before we release the
second trance of that operation. But I believe all major
political parties have an interest in ensuring the social safety
net in place and that's well implemented.

You mentioned before about initial signs of recovery. But some
critics said that those indicators of recovery were very fragile.
What threats do you see lie ahead and what do you think the
government should do to maintain recovery momentum going?

The initial signs we have of economic performance this year
are actually better than expected, both in terms of lower
inflation and higher growth. But two things are correct as you
said. One, this is very fragile, very partial information. And
second, it's still far away from the requirement for the
sustained recovery of this economy. So, one cannot be complacent,
and one cannot be satisfied.

And the major threat, the overriding threat now is the
political process. It has to stay on track for a fair and free
election. I consider this a prerequisite for sustained recovery.
There is no guarantee. There will be a lot of uncertainties after
the election. I'm sure. But if you do not have the election, it
will be impossible to recover and regain the confidence of both
foreign investors and more from domestic investors.

Second threat is that the progress of economic reform is not
sustained during the period of political uncertainties after the
election. I have to say that I have been impressed by the
willingness of this government to keep pushing major reforms in
the banking sector, a very major legislative agenda in the
parliament, pushed ahead by significant changes in public
spending. All of these have been done during a period of an
uncertain political future. I give a credit for that. I just hope
that whatever happen after the election and whoever become the
new government, that degree of progress is sustained. So, these
are my two largest threats.

Maybe the third threat, which is related, is if the government
-- whether this government or new government -- cannot provide
assurance that issues of governance and corruption are being
tackled. And nobody expect that this is to be a quick change,
this is not a change that occur overnight. But there are a huge
agenda left on civil service reforms, on legal reforms which can
now try to mitigate the problems by putting safeguard measures,
for example in the social safety net program. But you need to
have in place a broader system that will affect and influence all
public expenditure and all civil service behavior. This is going
to be a big change.

Quite frankly, one of the best ways of improving governance is
the transparent provision of information, whether through a free
press which is a big asset for Indonesia right now -- good job
and keep it up because that's going to be very important for the
future. But equally, the requirement that the government publish
information on programs, not only in Jakarta but right down to
the local levels, is a very powerful way of insurance that the
public can question public servants and can get access to the
services. That's a tremendous mechanism that will go much further
than just a quick fix in the center. Information, I'm convinced,
is the key. But at the same time, moving ahead on civil servant
wages, moving ahead on judicial system, these will be longer term
changes in the maturing Indonesia that need to be actively
pursued by any government. And I'm pleased to see that these
issues are on the top of the agenda of all major political
parties.

Corruption is a major issue here. And the government has been
trying to address this delicate issue through various measures,
including promulgating the anti-corruption law. But public trust
in the government is still lacking. What measures do you think
are needed to fight corruption?

No one measure is going to be enough. And any law, as we have
learned in any other countries, is only as good as its
implementation. Who's going to ensure the enforcement, and who's
going to ensure compliance with these laws. That's why, you need
to work on the whole judicial system. I have to say, though, that
an active parliament is probably going to be one of the key
instruments of the new democracy in Indonesia that's going to
ensure proper safeguards on the activity of public servants.

I believe the law will require civil servants to account for
their wealth at the end of their terms, not just at the starts.
That's a very important law, a very key element in making sure
that civil servants are aware that there are consequences to KKN
(corruption, collusion and nepotism practices). We also see by
the way of some other changes came to Kepres (presidential
decree) to ensure that private participation in infrastructure is
equally subject to open bidding so that private deals can no
longer be done in the future.

All of these are very good. But it will only happen over time.
Personally I believe, it will be very hard to get a major change
on the public service without changes in wages. How can you
expect a civil servant to live on a wage which is not livable and
not be susceptible to corruption. To me, this is asking the
impossible.

Some people estimate that the wages have to be adjusted or
raised by something like 10 times. Okay, maybe you argue it's
impossible. But then what's the priority if you want to tackle
corruption? How are you going to afford the change in wages?
Maybe, you can make it safer by reducing the costs of development
projects because of the reduction in corruption. Maybe you need
to rationalize the whole package of wages and benefits that the
civil servants get.

I don't have the answers. We are just starting these works.
But if you don't tackle that issue, it seems unrealistic to me to
expect any law by itself to bring significant reduction in
corruption. It's almost immoral for me to sit here earning the
salary that I earn and say a civil servant who does not earn a
livable wage should be corruption free. It's very easy for me to
be corruption free because I earn an income of which I can live
well. It's not reasonable to ask that poorly-paid civil servant,
or poorly-paid journalists, to be corruption free.

The World Bank has been accused of letting a portion of its
loans to Indonesia be corrupted by government officials. How does
the bank address this issue and what steps does the bank take to
prevent further embezzlement of World Bank loans to Indonesia?

It's very hard for the World Bank to isolate its projects from
the overall environment in a country. Every country which we work
with has some level of corruption. Indonesia has had above
average corruption. And therefore, there will be corruption in
projects that the bank is associated. Does it mean that you
should not support development in those countries? No, you
should. But what you should do in addition to try to reduce
corruption over time. And there are two parts to that answer.

One part is making sure you do everything you can to improve
the environment in the country like what we have discussed
before, legal reform and civil service reform. Second, you can
ensure that the safeguards around the programs are adequate to
contain and hopefully eliminate corruption. That's in a way what
we have been doing in the whole range of projects, like Kecamatan
development project, village development project, urban
development project -- all have very innovative ways to improve
local decision making, transparency of information. Indeed what
we are doing in the social safety net program is exactly this.
And third is the applications of our own procedures that whenever
we are confronted by evidence of corruption -- you know it is
very hard to have evidence of corruption as by nature it is
hidden -- we act decisively.

What about reforms in the World Bank itself. Could you explain
them shortly, and how they affect your operation in Indonesia?

Over the past few years, I've been working with World Bank
President James Wolfenshon and senior management of the bank to
reform the World Bank. And to me, this is an important part of
what influences me, and I think this will affect what we are
doing in Indonesia.

When President Wolfenshon came to the World Bank four years
ago, the bank was severely criticized of being arrogant, of being
bureaucratic, of being centralized, Washington-based institution.
And there was a campaign which basically argued that the World
Bank was an institution of the past, not of the future. And
President Wolfenshon traveled to many countries, including
Indonesia, and he concluded that these messages needed to be
heard and had to affect the way the World Bank operated. And here
he instituted in the World Bank a major renewed program, which
really significantly reoriented the institution.

I just want to mention a few of the changes. I think they are
very relevant to the same changes that are going on in Indonesia.
Firstly, he recommitted the Bank to the mission of fighting
poverty. And our mission now reads "fight poverty with passions
and professionalism." And that is a mission that applies to all
members of the World Bank Group, whether the IBRD, IDA, IFC and
MIGA. Even though some members of the World Bank group deal with
the private sector, the IFC and MIGA, their basic rationale and
mandate is still fighting poverty, not making profits.

So the mission of the bank was clarified. And this is
important in a time when there was a lot of preoccupation with
the financial crisis and changes in the international financial
architecture. He has proposed a comprehensive development
framework which tries to capture that agenda for fighting
poverty. And he has two key elements to work. The first, the
recognition that to fight poverty you need to move on many
fronts, not just about macro policy, which is of course
important, not just about restructuring banks and corporates,
which is important, but equally it has to do with the quality of
institutions, the quality of your government, quality of your
legal system, the quality of your social program, education,
health, etc. This is not new, this is not something which is
radically different, but a recognition that the agenda that you
have to address is very broad, and this is equally applying for
Indonesia right now.

But given the agenda is very broad, he has argued also it is
no longer the agenda of the World Bank, or any one institution
can address. And that's why, the concept of partnership is very
key to the delivery of this agenda. So, we have to work not just
with the government, not just with other official agencies, but
also with civil society and the private sector. And again, in
Indonesia, we see those actors becoming increasingly important.
And we have to learn to work with them in new ways in the future.

Thirdly, what we have seen in the World Bank, and this is to
overcome the idea of the central bureaucracy, is a tremendous
delegation and decentralization of authority. So, I am here,
country director for Indonesia programs, and I have full
delegated responsibility to manage these programs from Jakarta,
not from Washington, and I would be fully accountable for any
mistake that we make. So, I have tremendous responsibility to try
to design programs and implement the programs that achieve the
basic mission of the Bank group, that is fighting poverty. And I
would be evaluated against the extend to which we can help the
government and the people of Indonesia achieve that outcome. (rid)