WORLD BANK VICE PRESIDENT ON INDONESIA: ACCELERATING REFORM IN UNCERTAIN TIMES JAKARTA, October 13, 2000 - Releasing a report today in Jakarta in advance of the Tenth Meeting of the Consultative Group on Indonesia (CGI) being held in Tokyo October 17-18, World Bank Vice President for East Asia and the Pacific Jemal-ud-din Kassum commented that "despite jittery markets, nervous investors and fragile consumer confidence, Indonesia's economy continues to show signs of recovery." With the right policies and a stable environment, he noted, investor confidence could be restored. The World Bank's latest brief to be discussed at next week's CGI meeting, Indonesia: Accelerating Reforms in Uncertain Times, notes last year's positive trends in the economy: it says that growth has taken hold, with its base expanding beyond consumption. Inflation is under control, real wages are rising again, and poverty has declined from a punishing peak of over 23 percent. Indonesia's cushion of international reserves has increased, and higher oil prices and incomes have lowered the government deficit. Mr. Kassum, however, cautioned that financial markets remain unconvinced by the developments in the real economy, and that factors such as political uncertainty, regional unrest, and periodic outbursts of violence, combined with policy slippage on the structural reform agenda, could still derail the economic recovery. "In the short term," said Mr. Kassum, "we see confidence as key to accelerating the recovery." The Bank's CGI Brief emphasizes the need for visible results in three key areas: bank and corporate restructuring, a carefully implemented decentralization, and fiscal consolidation. "In the medium term," Mr.Kassum stated, "we consider poverty reduction and good governance -- which are closely interrelated -- as the central challenges for Indonesia." While absolute poverty has come down from its crisis peak, the report notes, over half of Indonesians remain vulnerable to poverty. It is important that the Government develop a strategy that mainstreams poverty in all its interventions, and through a process involving all stakeholders. As for governance, Mr. Kassum noted that, "weak governance hits the poor hardest." The Bank report argues that misdirected spending shortchanges poverty programs, monopolies threaten small businesses, and illegal fees and levies prevent the poor from accessing government services. "A governance agenda is therefore a poverty agenda, and we urge the Government to adopt a more comprehensive approach, a clear strategy, and strong leadership on this issue," Mr. Kassum said. Mr. Kassum went on to say that, "in the lead up to the Tokyo meeting, a number of donors and members of civil society have raised concerns about recent developments in West Timor." In light of these concerns, donor representatives were briefed earlier this week by the Coordinating Minister for Political, Security and Social issues on actions taken by the government to date. Continued progress on this issue will provide a positive environment for donor support. Mr. Kassum, who met with members of Government, Parliament, civil society, and the press during the past two days of his visit, concluded, "these are clearly trying times for Indonesia, but I am encouraged by the promising start by the new economic team. The challenge is now to build on this momentum, develop a strong poverty oriented development strategy, improve governance at all levels, and begin to show results on the ground."