Chairman's Concluding Remarks

Jean Michel Severino, Vice President, East Asia and Pacific Region
The World Bank
 

        This CGI meeting, the first to be held in this millenium, was unique in many respects. It was the first with a truly democratically elected Indonesian government, which added considerable meaning and significance to the proceedings. The international goodwill enjoyed by the new government of President Wahid permeated the deliberations throughout. We also benefited greatly from holding the meeting in Jakarta in many obvious ways, and in some subtle ones as well. Not least of these was access to many key ministers and top officials dealing with difficult economic and governance issues who graciously took time from their busy schedules to share their thoughts with us. After Netherlands last year, we welcomed Portugal as an observer at the CGI, which in its own way, symbolized a welcome break from the past and held the promise of a more collaborative future. The presence of civil society groups also contributed to the uniqueness of the meeting and helped add further transparency to aid coordination and the consultation process between donors and the government. The demonstrations outside this building gave immediacy to our discussions, reminding us of the complexities and difficult trade-offs facing the country and the government's reform program.

        At the outset let me, on behalf of all the participants, thank Bank Indonesia and the Government of Indonesia for their gracious hospitality and the excellent facilities. That everything went off without a hitch is a testimony to the hard work that has been invested in these arrangements.

        The opening statement by Vice President Megawati Soekarnoputri set the context for the proceedings, putting to rest any concerns about the government's sincerity in settling regional and sectarian tensions threatening the country, promoting human rights, and highlighting the key issues of social justice and good governance. Let me thank other senior members of the Government of Indonesia for their thoughtful presentations and for providing full and frank responses to many of the excellent issues and questions raised by the participants in this CGI. Time and time again, the candor and honesty with which government officials engaged in the discussion was striking, adding context and richness to the dialogue with the donor community. Let me also acknowledge the important presentations made by the IMF, Asian Development Bank, and the UNDP, as well as the interventions and contributions around the table by all of you. The constructive interchange that characterized all the sessions reflects the strong working partnership the new government appears to have forged already with the members of the consultative group, and the strong collaborative links within the aid community itself.

        The discussion ranged over a broad array of issues important to the economic recovery and critical to Indonesia's future. But there was a thread that ran through them -- the clear and urgent need for stronger, more transparent institutions with the capacity, authority, legitimacy, and credibility to implement complex and demanding reforms and to build a democratic Indonesia that provides social justice and broad-based economic growth to its citizens. On this, there appeared to be considerable unanimity. In summing up, let me highlight five important messages that emerged over the last day and a half of discussions:

FIRST, the CGI members congratulated the government on preparing a budget suited to Indonesia's circumstances and putting together a detailed and comprehensive economic recovery program in the first 100 days in office. But they noted that the challenge now was to implement this tough but necessary agenda. All donors expressed the willingness of their governments and institutions in supporting such and effort and that this support would be sustained as long as there was continued strong progress in implementation. Considerable emphasis was placed on bank and corporate restructuring. Japan, in particular, also stressed the importance of fiscal consolidation and domestic resource mobilization.

SECOND, we were reminded by ADB and UNICEF about the social dimensions of the crisis and the importance of keeping it at the center of our concerns. Effective government interventions in health and education touched upon all the governance, and indeed the economic issues that confront the program as a whole -- civil service reform, decentralization, resource availability, financial management, and so on. But equally important was the message of empowerment -- of individuals, families, neighborhoods, communities, and local governments -- and the pro-poor social sector programs would be strengthened immeasurably by working more closely with local organizations. I think this is a commitment that the donors present here can make, that we shall work in this spirit from now on with the Government.

THIRD, many of the participants including the IMF, France, and Germany, while recognizing the political demand for decentralization, stressed its risks and suggested the Government take appropriate actions to mitigate them, particularly on the fiscal and institutional capacity sides. Of greatest concern was the implication for fiscal instability at the center and the capacity of local governments to shoulder their new and onerous responsibilities under the new laws. Inadequate attention to these risks could lead to a serious deterioration in the quality of public services and contribute further the government's debt burden. Many offers of technical assistance were made to the Government to help mastering these issues.

FOURTH, let me now turn to the session of governance and spend time on this particularly critical issue. Those of you who are veterans of CGs will I am sure agree with me that yesterday's discussion on governance was quite remarkable in at least three respects:

• First, the very strong emphasis on governance placed by the government in its various statements. Clearly we have here an unusually strong and broadly shared consensus in Indonesia that governance reforms are critical to a successful outcome for this young democracy.
• Second, the remarkable candor and refreshing honesty that characterized the interventions from the government.
• Third, the near unanimity in all the statements we heard yesterday, whether they came from government or donors, that this is the one critical area we need to work together on and get our collective act together.

On that last point, while different donors emphasized different aspects of the program like Australia, Norway, and Sweden, I believe the interventions revealed an awareness of the inter-relatedness of all issues, as Germany put it, the critical need for legal and judicial reforms, and for civil service reforms and capacity building. I believe there was recognition that Indonesia will have to move on a broad front but that there was need to be, as the Australian chair noted, strategic and focussed in the short to medium run so as not to overload the system.

At the same time, we all came away, I believe, sobered by the difficulty of going forward. On the one hand, expectations in this "Era Reformasi" from the Indonesian public, from the international investment community, from donors is high. Everyone wants to see results. And yet, as we all know there are clearly no quick fixes, no magic solutions. And as the intervention from the government side revealed, there are unenviable trade-offs. Ibu Erna was right yesterday to ask us to help the government in lowering expectations, and to be patient given the complexity of the situation facing the government. This young democracy is fighting so many fires that it is difficult to focus, leave alone develop momentum on these longer-term issues.

And yet the message I think I heard from donors yesterday was that the government does not have a choice. Public patience will wear thin if the government does not show some quick wins, some early results. Attorney General Pak Marzuki identified three tests that he faces in terms of prominent public prosecutions that will influence public support. Experience from elsewhere, which donors were echoing, was that the momentum for reforms needs to be stepped up, and that early attention needs to be paid for some well publicized quick wins with demonstrable results that inspire other reform efforts and help develop momentum.

I believe there was broad consensus yesterday behind an approach that would have the following elements, articulated by both Ravi Rajan of UNDP and Mark Baird:

• A broad national debate and dialogue that the new partnership arrangement sponsored by the government, the donors and international agencies would facilitate
• Key analytical work and base line surveys that inform such a debate
• A strategically prioritized program of action that emerges from this debate with a clear identification of a few quick wins that send a clear signal of the government's resolve to move forward
• Coordination of the aid effort under this partnership arrangement so that we mutually reinforce each other as we try to help Indonesia rather than overload the system.

We now need to quickly get down to specifics. Let me mention four areas:

First, the Bank and UNDP will respond quickly to Minister Kwik's invitation that we now come together to develop a mutually agreed game plan. The Partnership needs to be activated quickly and we need to move aggressively to put money into the newly created Governance Fund that Ravi mentioned, which would be the main vehicle for aid coordination of technical assistance in this area.

Second, on the Bank's side we will now move forward in the area of judicial and legal reform, under the umbrella of the partnership, so in this one area which many donors regard as critical going forward, we begin to deliver some results,

Third, we need to move on ensuring that mechanisms are quickly put into place to reduce opportunities for wastage and leakage in aid financed projects. We have put a number of ideas on the table. I am sure there are others. Here again we will work with Minister Kwik and his team to develop a plan of action.

Erna's invitation to make her crucial ministry a pilot for governance reforms provides a unique opportunity for the government and donors to show what can be done in this area. Implementation, as I have noted above, remains a key issue in Indonesia. Here is a chance to help show it can be done.

FIFTH, I would like to congratulate the Government for convening the forestry seminar last week and thus fulfilling the commitment it made at CGI in Paris in July of 1999. I am particularly pleased at the positive response of the Government to the issues raised at that seminar as evidenced by the proposals put forward yesterday in the statement of the Ministry of Forestry and Estate Crops. Clearly the long-term solution to the problems of the sector is the successful development of the proposed National Forest Program in full consultation with representatives of all stakeholders in and outside of government. But, as the EC underlined it, we all recognize the need for urgent action in the crucial areas of illegal logging, downsizing of forest industry capacity to match sustainable raw material supply, and a moratorium on conversion of natural forest, among others. I therefore welcome Minister Kwik's commitment to establishing the Interdepartemental Committee and the forum of interested donor agencies and his call for a timetable for implementation of the urgent actions. The World Bank will be pleased to help with the setting up of the donor forum on forests and the first joint meeting with the Interdepartemental Committee. We agree that the continued involvement of EKUIN and the donor forum will help to maintain the momentum that has now been established and will be an appropriate mechanism to report on progress in Indonesian forestry to the next meeting of the CGI.

 
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        Turning to the pledging session, the donors expressed their continued commitment to Indonesia by projecting US$4.7 billion in disbursements for the next fiscal year 2000. In order to bridge completely the financing gap, several participants stressed the need to expedite the signing of bilateral rescheduling agreements that would open the door to a new Paris Club meeting. Donors emphasized on more than one occasion that they were particularly concerned about the use to which this money would be put and the care with which it would be spent. The Government itself highlighted the importance of quality in aid program. The donors urged the Government to prepare a strong pipeline of development projects and programs that would assist donors in identifying suitable projecting financing opportunities as well as help coordinate donor support. Reflecting on the presentations made by ministers, they also noted the importance of improving mechanisms for monitoring and evaluating government expenditures, and for providing feedback and resolving complaints -- much along the lines of systems adopted to improve the governance of social safety net programs. Earlier in the course of this CG, both the Government and the donors had commented on the very high level of offers of T.A. and highlighted the need for discipline, rigor and coherence in this area. We rely on the GOI to coordinate the international community and will pay a major attention to this issue.

        We jointly need to build on the sense of partnership and dialogue that was so evident during these two days. Donors and government should periodically meet in Jakarta to discuss mutual concerns and coordinate support. The World Bank would be pleased to continue to play its part in this, but looks to other donors to take a lead role in coordinating support in key areas -- as is happening so successfully in the social sectors and in decentralization. And I would hope that the new governance partnership with the government will play a key role in providing strategic support and coordination in this important area.

        Finally, let me make two points to close these proceedings -- one on logistics and one personal. On logistics, we discussed the venue of the next CGI and decided that it should be held in Tokyo. The proposed month of the next CGI will not be in July, as is traditional, but instead will be held in October to fit better with the new budget cycle of the Indonesian government. We understand this is a crowded period, and have to be careful before firming on any date. We therefore will consult and notify you in due course on the specific dates.

        Let me conclude on a personal note. As you know, at the end of February I shall be leaving my job in the World Bank after four incredibly interesting and challenging years and will return to the French Government. So this is the last CGI that I shall chair. I have always found my work in Indonesia fascinating and it has been a privilege to get to know many, very special Indonesians. I have been deeply impressed and moved by the fortitude and character with which the Indonesian people have faced the current crisis and I am encouraged by the gradual turnaround in the economy. I am also incredibly happy that my last action in this program will have been to help consolidating and promoting a government devoted to democracy, human rights, governance. This is not a satisfaction we always get, and it is worth expressing it. For this, let me thank the Indonesian people and their Government. I hope that under the stewardship of the current government, Indonesian goes from strength to strength and regains its vitality as an Asian Tiger, this time built on solid foundations of institutions and the rule of law.