Jakarta Contact:Melanie Widjaja 62-21-52993000

DONORS CONFIRM SUPPORT FOR INDONESIA
"Staying the Course of Reform" seen as crucial to recovery

Paris July 28, 1999 — Indonesia's donors delivered a strong message today with a pledge of $5.9 billion in foreign assistance for the Indonesian fiscal year 1999/00, in support of Indonesia's staying the course of economic reform, continuing to protect the poor, and stepping up the fight against corruption.

Donors, comparing this year's meeting to last year's, called the mood of the two-day forum as being "hopeful" and "optimistic", citing the significant progress made in the past twelve months—in both the political and economic transition—as having provided a foundation on which to build for the future. Although signs of recovery are beginning to emerge, the reform agenda ahead is complex, and donors emphasized the need to stay the course of reform.

Mr. Sven Sandstrom, World Bank Managing Director and Chairman of the Meeting, warned, "we must not become complacent. Macroeconomic stability does not complete a recovery any more than the foundations provide a house to live in." He urged the government to "persevere and continue to make good decisions in politically difficult times," and asked donors to continue to help the Government with the building process, to ensure that the next government is able to inherit an economy which is in good shape.

Coordinating Minister for Economy, Finance and Industry and head of the Indonesian delegation, Mr. Ginandjar Kartasamita, echoed these thoughts when he said, "what we have achieved in the past year should not block our view on the challenges ahead. Indonesia's return to the pre-crisis days of high growth and accelerated poverty reduction is still far from assured. The challenges ahead can only be overcome if we remain focused on our reform priorities, can manage a smooth transition to the next government, and can continue to rely upon the support of the international community."

Broad agreement was reached among Government and donors on the following points:

• while commendable progress has been made, acceleration of reforms is needed, to complete bank and corporate restructuring, to deepen governance reforms, and maintain macroeconomic stability and growing confidence.
• the importance of strengthening the delivery of the social safety net programs, to protect the poor in the short-term while putting in place social protection structures that can be used during periods of economic downturn; both of these would rely on deepened Government and donor partnerships with civil society.
• with the move from crisis to recovery, Indonesia will need to shift from focus on fiscal stimulus to better fiscal management. This would require more effective and transparent use of resources, and greater emphasis on domestic resource mobilization to offset pressures of increasing public debt, growing constraints on availability of external financing, and reduced borrowing.
• institutional strengthening by continuing with the governance agenda, including civil service and legal reform, is seen as essential in the fight against KKN—corruption, collusion, and nepotism.
• Sustainable management of natural resources is critical for sustainable development.
• Support for the completion of the political transition—this includes both the process of selecting a new President and the Government's commitment to provide the security necessary for the August popular consultation on East Timor to be conducted in a free and fair manner—and recognition of the importance of security for sustained development throughout the country.

On forestry, Minister Ginandjar remarked, "we have already done much to make our forestry policy more market oriented and increase incentives for efficient and sustainable management, and more is being done as we work on a new Forestry Law and with it, consultations with interested parties. We understand donors' concerns, and are committed to holding continuous consultation with all stakeholders to gain both public support for and facilitate implementation of the proposed forestry sector reforms." It was agreed that a follow-up meeting would be held in Jakarta in the near future.

Minister Ginandjar also delivered a statement on East Timor, reaffirming Government commitment that the popular consultations proceed in a safe, fair and transparent manner, and that development funds—particularly those designated for the social safety net—are not abused in any way in the time period leading up to the ballot.

Delegates thanked the Government for the spirit of openness, cooperation, and commitment in which the meeting was conducted, saying that this meeting of the CGI served to strengthen even further the partnership that has been steadily growing over the past years. Donors expressed appreciation for the frank manner is which the issues were discussed, and noted that the CGI process has remained flexible and responsive to the ongoing complex political transition, citing the consultations in Jakarta with the political parties, the offer to meet again in six months time, and the move to consult civil society on future CGI matters.

As expected, governance and anti-corruption featured heavily in discussions. Donors joined the Indonesian government in emphasizing the need for better governance and an enhanced strategy to fight corruption, to build a climate of greater transparency and accountability. "The crisis has taught us unmistakable lessons that all human endeavors need rules that are transparent, perceived to be fair, and encourage prudent behavior…….we need to enhance competition and at the same time build strong institutions for the long-term good of our country," said Minister Boediono, of BAPPENAS, National Development Planning.

Minister Ginandjar said, "Indonesia's key medium term challenge is institutional reforms that will provide for good governance. Strengthening these foundations will require years of hard work and a fundamental overhaul of the way Indonesia does business, in the private sector and in government alike. The agenda is a long one; civil service reforms, judiciary reforms, and more participatory means to prepare, implement, and monitor government policies all need to be part of it." He added, "freedom of the press and the active role of the civil society can ensure that the people will not be deprived of their rights and of their well-being by wrong and bad governance."

While the agenda for the CGI meeting was broadly based around the reform program, development priorities, and anti-corruption, donors used the opportunity of the forum to raise a number of specific issues, including the social safety nets and social impacts of the crisis, strengthened environmental protection and forestry issues, the situation in East Timor, and the ongoing political transition. Citing the fact that this CGI is being held in a period of political transition—and that many decisions on the longer-term direction of Indonesia will have to be taken by the incoming government—it was suggested that the CGI could reconvene in about six months time to revisit financing needs and priorities for next year.

The Consultative Group for Indonesia met in Paris on July 27-28, 1999, under the chairmanship of Sven Sandstrom, Managing Director of the World Bank. The Indonesian delegation was led by Ginandjar Kartasasmita, Coordinating Minister for Economy, Finance, and Industry; and included the Minister of Finance, Bambang Subianto; the Minister of National Development Planning and Chairman of BAPPENAS, Boediono; and the Economic Advisor to the Government, Widjojo Nitisastro.

Participants in the CGI include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Korea, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom, United States; Asian Development Bank, European Investment Bank, European Commission, International Finance Corporation, International Fund for Agricultural Development, International Monetary Fund, Islamic Development Bank, Kuwait Fund for Arab Economic Development, Nordic Investment Bank, Organization for Economic Cooperation & Development, Saudi Fund for Development, United Nations Children's Fund, United Nations Development Program.

For more information on the meeting please see our website: http://www.worldbank.org/html/extdr/offrep/eap/cgi99/idcg99.htm or background documents, to be posted shortly:
Indonesia: From Crisis to Opportunity (Economic Report July 1999)
Opening Statement of the Chairman: Sven Sandstrom
Closing Statement of the Chairman: Sven Sandstrom
The Transformation of Indonesia: Minister Ginandjar
Governance and the Problem of Corruption: Minister Ginandjar
Emerging from Crisis: Staying the Course of Reform: Minister Bambang Subianto
Indonesia: Building a Long-Term Development Agenda: Minister Boediono
Indonesia: From Crisis to Opportunity: Mark Baird, Country Director, World Bank