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)