Indonesia Consultative Group Meeting Tokyo, October 17-18, 2000

Opening Statement by Dr. Rizal Ramli Coordinating Minister for Economic Affairs Republic of Indonesia Your Excellency, the Honorable State Secretary Minister of Foreign Affairs, Mr. Araki and the Honorable State Secretary Minister of Finance, Mr. Muraka. Chairman of the CGI, Mr. Jemal-ud-din-Kassum, Vice President of the World Bank, Your Excellencies from the CGI Delegations, Ladies and Gentlemen. On behalf of the Government of Indonesia, I would like to thank the Government of Japan for hosting the tenth Consultative Group meeting on Indonesia (CGI) in Tokyo. Japan, during the economic crisis and this CGI meeting, has shown a very remarkable leadership. I would also like to thank the World Bank, in particular Mr. Kassum and Mr. Mark Baird, for convening these sessions and for the excellent arrangements that are certain to contribute to the success of this meeting. Distinguished Delegates, The last CGI meeting in Tokyo was held in July 1997. Those sessions, the first to be held in Japan, took place under an ominous cloud. Few thought then that the financial crisis unfolding in Thailand would spread to other countries or that we would still feel its effects three years later. As we are aware, the crisis left a deep imprint on Indonesia and unleashed the most momentous change in our nation's post-war history. As a result, 32 years of the Soeharto New Order government evaporated with his resignation in May 1998. With that act, we moved overnight from a country governed by an autocratic regime to an emerging democracy. As we all know, our path to democracy has not always been smooth or quiet. But we can all take pride in the democratic election of President Wahid last year. While the Cabinet in which I am honored to serve has been in office less than two months, I can assure you that we take our responsibility of preserving Indonesia's hard-earned democracy very seriously. We believe that decisive and quicker implementation of our program will return Indonesia to sustainable levels of economic growth. That is our most effective means of protecting and guaranteeing our fledgling democracy. Ladies and Gentleman, By any standard we have moved very quickly from autocratic rule to a democratic society. As a result, the Government is under intense scrutiny. Our Parliament now engages in healthy debate on public policy and is rightly demanding a high rate of accountability by the President, the Vice President, the Cabinet and our civil service. Our NGO's also play an important role in identifying deficiencies in policies and practices and in helping to bring those responsible for a range of abuses to justice. These are healthy indicators of an increasingly pluralistic, democratic, and rule-based society. Increasingly, it is a society where freedom of speech, the press, and free association are respected and individual rights are undeniable. Implementing and supporting our new-found democracy also seems, at times, to be Indonesia's biggest challenge. The demand for increasing accountability by our legislative bodies and others requires that public policy incorporate the views of a Parliament that is far more reflective of its constituents than any of its predecessors. I can assure you that our Parliament has discarded the 'rubber stamp' approach of previous legislators. One resulting challenge is supporting the healthy interaction between government and parliament while also creating public policy that is consistent and transparent. I know from my own direct experience that the time invested in both is essential if we are to achieve greater political, economic, and social stability. We are a nation moving toward full democracy. But in the process, we must deal with a legacy of abuse and poor governance left by 32 years of entrenched one-man rule. Some observers may agree with Thomas Friedman, the Pulitzer Prize-winning writer for the New York Times who said that Indonesia, like Russia, is a kind of "messy state." While I disagree with the pessimism of that term, I do think that we need to look closely at his premise if we are to build a society focused on equitable, sustainable and democratic development. Mr. Friedman said that the removal of Indonesia's autocratic leadership created a vacuum where "fragmentation of power in which neither the army, the parliament, the executives nor the remnants of the old order have the strength to assert their will." He concluded that messy states are 'too big to fail; too messy to work." I believe that our new team is too committed to fail. Our key weapon is our commitment to ensuring that this government offers certainty, predictability, and most importantly, accountability. We are decisive and in agreement that 'procrastination is the enemy of time' and that Indonesia cannot afford the high cost of indecisiveness. As a new Cabinet, we are moving quickly to address Indonesia's economic crisis. As you know, immediately upon taking office, we requested a review of the IMF agreement signed by the previous Cabinet. We did this because we felt that we could not clearly implement a program in which we had no design role and one that did not reflect our team's strategic goals. The dedication and hard work of our team and their staff helped us to quickly draft a revised agreement that included our ten-point economic recovery program. The revised agreement was reviewed by IMF staff and subsequently approved by the IMF Board. I want to emphasize that we committed to the IMF program and to its role in Indonesia's economic recovery. Past agreements were quite broad and included a level of detail that made them difficult to monitor. But we believe that the coverage and depth outlined in the most recent agreement will support ease in monitoring its implementation. In the next program review, scheduled in the coming weeks, we will work with the IMF to formulate a better program. It will be a program that spells out strategic measures and a realistic timetable to ensure that program implementation can be easily tracked. We have also requested, as part of the organization of our recovery program, that the World Bank and the Asian Development Bank focus their assistance on their core competency sectors. Under our request, the IMF will coordinate the broad economic recovery agenda with special attention to macroeconomic, monetary, financial sector, and fiscal issues. We believe such clear division of labor will help focus the work of the IMF and all donor agencies and contribute to the most effective use of development resources. Since our team took office, we have also completed the bank recapitalization program begun in March of last year. That program met substantial delays for a variety of reasons, and the eighteen months it took to complete have added great costs due to lows from sustained negative spreads. We recognized this and took immediate measures to speed the recapitalization of the remaining banks to stem further losses. I want to add that our program is not restricted to the recapitalization of these institutions. We are also introducing a number of measures aimed at strengthening their future performance. This has included changes in management to improve the quality of leadership, imposing performance criteria, introducing governance structures, and retaining international technical expertise. We are fully aware that the recent delay of further privatization of Bank Central Asia (BCA) and the sale of Bank Niaga have generated speculation regarding our commitment to privatization. We reiterate that bank privatization remains one of the primary goals in our financial sector reform program. Most importantly, these privatizations help reduce the public sector burden associated with the government bonds issued to these banks. We also believe that foreign investor participation can support our banking sector's rapid development and strengthening due in part to the technologies and practices that these investors bring. We are encouraging foreign investors to buy our banks or take a significant equity interest to help make them globally competitive. Though our Parliament called for a delay in the further privatization of BCA and the sale of Bank Niaga because they felt that these assets would not bring the best prices under prevailing market conditions, we remain committed to bank privatization as quickly as possible. With a combination of further strengthening of time banks and an improved market environment, we expect to attract private sector participation in BCA and Bank Niaga early next year. The delay of these actions will have no impact on our current budget and IBRA's target for asset sales for this year will be maintained. Another issue that I know is on the minds of many is the situation in West Timor. We have provided a statement to you regarding our current position on this matter. I hope that it is very clear that we remain committed to resolving the security challenges in the border areas in West Timor and that many steps to address this matter have already been taken. These steps include sending additional troops from our army and the National Police to further improve security. Those troops are also carrying out successful confiscation of weapons remaining in the hands of the militias. We deeply regret the murder of the three UNHCR workers and seven Indonesian civilians last September in Atambua and we will bring those responsible for this tragedy to justice. In that regard, we have arrested individuals suspected for these crimes and they win be charged in court when our investigations have been completed. I can assure you our efforts will continue, but we should not underestimate the complexities and difficulties in the West Timor issue. In this regard, we are working to ensure the acceptance of an independent East Timor in all and promote a positive relationship with the people of East Timor. As many of you know, a militia leader was arrested recently and investigations are ongoing regarding to his violence. As noted above, we are also continuing our operations to disarm militias in Atambua complying with the UN Security Council Resolution 1319 on this issue. But, West Timor is more than a security matter and we should not allow the humanitarian aspect of this issue to be overshadowed by the security and military challenges we confront there. We acknowledge and appreciate the early support of international agencies that provided humanitarian assistance to deal with the influx of refugees from East Timor. We are now concerned that the withdrawal of those aid agencies from West Timor may lead to a potential humanitarian disaster around the refugee camps. That disaster must be averted and we have taken steps to strengthen the military and police forces in West Timor in order to restore security to this area. We hope this will encourage the return of the much-needed aid agencies. It is critical that the plight of the 130,000 refugees in West Timor not be ignored. We are particularly concerned because there is evidence of growing food shortages in those camps. To address this, we are releasing a three-month supply of rice from our national stockpile to ensure adequate food supplies. But given the magnitude of this challenge, we need assistance from the international community as we have limited resources and cannot conduct such a program for longer period. We urge the international agencies to return to West Timor to resume their important efforts to address the humanitarian needs of these refugees. Ladies and Gentlemen, Public and private sector governance is another important agenda. We are committed to improving governance at all levels. The focus for those initiatives is the acceleration of legal and judicial reform. Our recovery will be hampered if our legal system remains weak and our legal institutions are not able to cope with expanded demand by the public. Good governance is particularly important to the operations of the Indonesian Bank Restructuring Agency (IBRA) and we are closely monitoring that agency's governance performance. In the implementation of state enterprise privatization, we have been given parliamentary guidelines that require the maximization of value while also considering strategic and social factors. We place great importance on privatization in our economic recovery and we will encourage domestic and international investors to help reform state enterprises to make them globally competitive. We believe many of our enterprises, especially in the natural resource such as mining, agribusiness, and energy sectors, are attractive to foreign investors and we will be actively promoting their participation as part of our program. Our commitment to accelerate the privatization of state enterprises is visible in the recent decision to bring in foreign strategic investor to the management of the Jakarta Port. Measures are now being considered to attract foreign participation in the telecommunications sector, oil and gas, and utilities. We are also dedicated to accelerating loans restructuring held by large, medium and small enterprises. Since our team took office, we are completing the resolution of 14,000 SME loans with values below Rp. 5 billion. Our special attention to the SMEs is in line with the priorities outlined in our Ten-Point Economic Recovery Program. Because of the importance we place on SME development, we are formulating programs to accelerate the development of this sector. Ladies and Gentlemen, I would now like to address the steps we are taking to restructure our corporate sector. We have made substantial progress in restructuring larger corporate debts. The Jakarta Initiative Task Force facilitated the successful conclusion of many of these deals. A Financial Sector Policy Committee (FSPC) is responsible for overseeing major corporate debt restructuring initiatives. FSPC monitors corporate restructuring proposal, including financial viability of the firm, its growth potential, its contributions to our economy, the technology it uses, and the number of direct and indirect jobs that it supports. In evaluating each restructuring proposal, with the assistance of our financial advisors, we look at these points as well as the financial terms and conditions that have been negotiated. Our focus is decisive action to ensure that we conclude a sound restructuring plan that will also allow the corporation to continue to contribute to the economy. We are guided by the principle that the restructuring process is the same for each negotiation and the principles are applied evenhandedly to each corporation under similar circumstances. With each restructuring, as a condition of approval, the debtors must inject additional equity or assets, or a combination of both into the companies. They must also provide their personal guarantee to cover any deterioration in the value of pledged assets and the outstanding debt. In our recent transactions, these conditions were fully met and the transactions minimized financial losses to the state while preserving some 500,000 direct and indirect jobs. The economic crisis has caused significant damage to our corporate sector. In the restructuring process, we are guided by principles of best practices and good governance. In response to the donors' concern on the implementation of the decentralization, I would like to emphasize that the central government is still the responsible authority for all officials development assistance to Indonesia. Every donor will deal with the central government concerning loan agreements and repayments. On the forestry sector, we recognise that the emphasis on economic growth over the last thirty two years had led to huge over-exploitation of the forest resource. This has inturn led to the current crisis in the sector which we are committed to reform. However, we recognise that insufficient progress has been made on this issue since the last CGI meeting. We intend to develop a new, equitable and sustainable forest management system through a consultative approach and with the participation of all stakeholders. The excess demand for logs that threatens the sustainability of our forests, is one of the main causes of the illegal logging. We will promote better management of our forests in order to ensure sustainability. During the next sessions, members of our economic team will be outlining developments in Indonesia, the challenges we face and our plans to move forward. All of us will be available to answer any questions you might have and to expand on any points in which you are interested. The donor community, represented by the CGI, has always played an important role in our development process. With your continued support, we are dedicated to addressing these challenges while also ensuring the application of the principles of good governance and respect for the rule of law. In the process, our public policies are becoming more transparent and our public and private sectors are being made more accountable. These are important developments and we thank you for the role you are playing in making them possible. In closing, I am looking forward to your continued support and partnership. Thank you.