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World Bank Cites Progress in Indonesia, says More Reforms Needed - 2002-08-27

The World Bank's top representative in Indonesia says the country must not let political pressures get in the way of much needed structural reforms. Mark Baird, the World Bank's chief for Indonesia, says the government has done a solid job in returning the country toward economic recovery in the past three years.

He says the stock market and the national currency are now stable, inflation and interest rates have fallen, and the country's debt is shrinking.

That's the good news. But Mr. Baird warns that long term economic health will hinge on whether leaders have the political will to commit to institutional and structural reforms, such as improving tax revenues, developing sound labor policies and pushing ahead with the privatization of bankrupt state assets.

Indonesia's annual growth rate fell from nearly eight percent before the Asian economic crisis in 1997 to its current level of three to four percent.

While growth is still positive, Mr. Baird worries that too many promises maybe made ahead of the 2004 general election at the expense of sound economic decisions.

"Personally I don't expect a blow-out in budget spending. This is simply not the Indonesian way," he said. "But I do fear growing pressures for more trade protection and less privatization. Such populist measures are unlikely to lead to any sustained improvement in growth. Rather they are likely to further erode investor confidence, while undermining what has already been achieved in terms of economic stability."

Indonesia's economic worries are many. The World Bank notes that more than half of Indonesia's 200 million people live on less than two dollars a day, and 13 percent live below the poverty level. The country's middle class is struggling to maintain what it has managed to create despite years of political and economic turmoil.

Mr. Baird says the top priority is to tackle endemic corruption and institute judicial reform. "I don't think you're going to see judicial reform in a fundamental way for several years. And certainly you're not going to see the elimination of corruption for many years. The key is to see a steady process down that road," he said.

Mr. Baird says there is a limit to the amount of reform that the international community can force Indonesia to undertake it will be up the people and their elected leaders.