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CGI
SUPPORTS WHITE PAPER, SAYS IMPLEMENTATION WILL SPUR GROWTH
Jakarta, December 11, 2003
– At the 13th annual Consultative Group on Indonesia (CGI) Meeting, donors
voiced their strong support for the Government’s macroeconomic
achievements and its commitments to the Indonesian people to improve the
investment climate, to fundamentally reform the court system, and to
develop a long-term vision for poverty reduction. Delegates recognized
that effective implementation of these plans is now the key challenge. In
the coming year, elections will offer both opportunities and risks for
this ambitious agenda and donors urged the Government to maintain the
momentum of reform.
“Graduating from the IMF
program, next year’s phasing out IBRA and moving towards a modern
guarantee system will end the key crisis related programs and institutions
in Indonesia, closing the book on this episode in Indonesian history,”
said Dorodjatun Kuntjoro-Jakti, Coordinating Minister for Economic
Affairs. “But the reform agenda remains challenging.”
“All eyes are now on next
year,” said Jemal-ud-din Kassum, Chairman of the CGI Meeting and World
Bank Vice-President for East Asia and the Pacific Region. “If the
Government delivers on the commitments it has made in such impressive
documents as the White Paper and the Supreme Court blueprints, then growth
in Indonesia is set to take off. But significant slippage, especially on
improving the investment climate and governance, would put emerging gains
in market confidence at risk.”
Representatives of 30
bilateral donors and multilateral agencies met with a large number of
Government Ministers and officials, and a range of observers from civil
society and the private sector, to strengthen partnerships in meeting
Indonesia’s development goals. The Government’s progress in achieving
macroeconomic stability, in reducing the economy’s vulnerability, and in
restoring external viability was widely praised. CGI members expressed
comfort with the Government’s decision to graduate from the IMF-supported
program since most macroeconomic indicators show that the economic and
financial crisis is over. But concerns continue to be raised about the
quality of governance and the investment climate.
Donors pledged their
ongoing financial support for the Government’s development efforts. For
next year’s budget, total support will amount to US$ 2.8 billion, well
within the range that the Government requested. Of this, around US$ 0.2
billion is in the form of grants, the rest in the form of concessionary
loans. Disbursement on some US$ 1 billion of the amount pledged will
depend on the Government’s progress on its policy agenda. In addition to
the support through the budget, donors pledged technical assistance and
other support in the amount of US$ 550 million through other channels,
including NGOs and local governments.
In his remarks to the CGI,
Minister of Finance, Boediono summarized the Government’s economic
achievements: “The macroeconomic picture is good and more importantly
there is a solid foundation for future growth. The banking system is
largely back in private hands ready to play its role along side expanded
capital markets. Most importantly there is a homegrown Letter of Intent to
the Indonesian people and we are already delivering on the commitments in
it.”
Though some donors and
civil society observers expressed concern about the broad scope and short
time frame of the White Paper, the plan received significant support from
the CGI delegates, who highlighted the importance, now, of implementation.
“While some additional prioritization might be helpful,” said David Nellor,
Senior Resident Representative of the IMF, “the White Paper provides a
sound policy framework that, if adhered to, would help bridge the
potential “credibility gap” that could emerge as the Fund-supported
program expires.” Several CGI participants noted that considerable risks
remain in the macroeconomic situation and that financing needs will remain
high due to the expiration of the Paris Club rescheduling.
The CGI discussions placed particular emphasis on enhancing the investment
climate. Yutaka Iimura, Ambassador of Japan, said, “Growth of 3-4 percent
is not enough to absorb new entrants in the labor force and to reduce
poverty. To achieve higher growth, Indonesia should shift its economy from
consumption-led to investment-led growth, and for that, improving the
investment climate is a matter of urgency.” Reflecting on the views of
other delegates, Ambassador Iimura highlighted the importance of tackling
corruption because it hinders the investment climate. Also, while
welcoming the White Paper with its detailed 2003/04 timetable,
participants noted the need for a medium-term roadmap to attract
investment in infrastructure and other long-term projects.
Private sector representatives, while welcoming the White Paper, noted
that the current climate for investment remains difficult and continues to
discourage many potential investors. They put legal certainty, contract
enforceability, policy consistency, sound tax and customs administration,
labor, and infrastructure at the top of their list of concerns. They
called for a more consistent voice of support for private sector
investment from the highest levels of the Indonesian Government and
concerted action from the new Investment Team to address problems
affecting investments. In response, the Government welcomed the in-depth
dialogue with the private sector, and promised follow-up meetings on a
regular basis. “We are looking forward to regular exchange of views with
the private sector,” Coordinating Minister Dorodjatun Kuntjoro-Jakti said.
Throughout the discussions, issues of governance took center stage. “To
restore public and investor confidence, of utmost urgency is the need to
address the weak governance structures at different levels including
political institutions, different levels of governments and administration
as well as within the legal and judicial system,” said ADB Deputy Director
General, Shamshad Akhtar. “Weak governance has acted as a major barrier to
sound development in Indonesia nurturing corruption and rent seeking and
weakening the impact and effectiveness of development projects.” Dr.
Ursula Schaefer-Preuss, Head of the German delegation, encouraged the
Government to embark on a civil service reform, she said: ”efforts towards
good governance cannot be successful without a performance based,
responsible and responsive civil service”.
Prof. Dr. Bagir Manan, Chief Justice of the Supreme Court of Indonesia,
outlined a comprehensive blueprint for reform of the Supreme Court as well
as plans for shifting to a “one-roof” system of management of the entire
judiciary under the Supreme Court. Donors expressed high hopes for this
new reform momentum in such a critical area and pledged their financial
and technical support. They also welcomed the Chief Justice’s presence at
the meeting as an indication of strong commitment to judicial reform. Ruud
J. Treffers, Ambassador of the Netherlands, said, "Policies to improve
Indonesia’s investment climate will and can only be successfully
implemented where they are supported by an effective, predictable,
transparent and equitable justice sector.”
Delegates also urged other key justice sector institutions where continued
performance concerns have been raised to undertake similar efforts.
Speaking on behalf of the European Union, Francesco Maria Greco,
Ambassador of Italy, underlined, “Legal and judicial reform can succeed
only on the basis of an unremitting commitment to implementing and
enforcing the law. Hence all institutions within the legal and judicial
process, including the Ministry of Justice and Human Rights, the Attorney
General’s Office and the policy need to become active party to this reform
effort.”
Donors welcomed recent progress in the long-awaited establishment of the
Anti-Corruption Commission, whose members are now being considered by the
Parliament. CGI members trust that public integrity will remain the key
factor in the appointment of its members and are encouraged by the
openness of the process to date. The new Commission also needs to be given
the necessary resources and independence to allow it to fulfill its
mandate effectively.
But one governance challenge in which donors expressed concern about
continued lack of progress is in forestry. Despite initial efforts to
develop a collaborative approach to some of the problems in this sector,
one of Indonesia’s most valuable natural resources – the forests –
continues to be eroded at a devastating pace. “There is a sense of
frustration among the donors since their support and commitments have yet
to materialize into substantial results and there is a pressing need to
demonstrate real progress,” said Aldo Dell’Ariccia, Deputy Head of
Southeast Asia Unit, European Commission.
Togu Manurung, representing Indonesia’s forestry NGO, one of the civil
society observers to the CGI, remarked, “We are in crisis and radical
emergency measures are needed now, as we are running out of time. If this
continues the result will be total destruction of Indonesia’s tropical
forests.” He further added that “there must be a coordinated approach to
combat forest crimes between the Ministry of Forestry, Ministry for Trade
and Industry, Ministry for Foreign Affairs, the police and the judiciary
and the Ministry of Finance”.
The meeting was encouraged by the recent gains in poverty reduction in the
wake of renewed macroeconomic stability. Donors stressed that to make
further gains, higher growth and better services for the poor are
critical. Concerns were expressed about large regional disparities and
social inequalities, as well as Indonesia’s lagging social indicators.
“Reductions in poverty will also require a more equitable allocation of
resources, so districts are able to finance improvements in social
services and infrastructure,” said Martin Dinham, Director for Asia, DFID.
The UNDP Representative, Gwi-Yeop Son, further noted that a “failure to
make a real difference to the lives of ordinary people through effective
governance reforms will pose a threat to both democracy and security.”
Donors welcomed the Government’s renewed commitment to meeting the
Millennium Development Goals (MDGs) and the engagement to discuss the
progress towards MDGs at the next CGI meetings. They also welcomed the
commitment in the White Paper to developing a Poverty Reduction Strategy.
Once completed, the Strategy should be reflected in policies and budget
allocations that better benefit the poor. It should also reduce
significant regional disparities thereby moving Indonesia forward on the
MDG targets. CGI participants also stressed the need to make
decentralization work better so that the quality and access of services
are more responsive to the needs of the poor. Listening to the voices of
the poor and developing a poverty reduction strategy through a
participatory process was emphasized by donors and civil society alike.
Coordinating Minister for People’s Welfare Jusuf Kalla said, “The
Government will continue to invite community participation to enhance
empowerment of local communities. We should be able to develop a common
platform from which poor people and communities can link with service
providers to get higher quality and more equitable access to basic
services like health and education facilities, clean water and
sanitation.”
Donors expressed particular concern about the direction of several trade
measures and their possible impact on the poor. “Government policies that
are supportive of increased trade are also essential to increased economic
growth, and can have significant impact on poverty reduction,” said Ralph
L. Boyce, Ambassador of the United States. Donors pointed out that a
pro-poor trade agenda would include better rural infrastructure,
well-governed customs, and abolition of local taxes on domestic trade.
Delegates also recognized that it is vital for donor countries to open
their own markets to Indonesian markets. “An open check book with closed
markets is not helpful to Indonesia” said the Ambassador of New Zealand,
Chris Elder.
CGI members participated in a pre-CGI dialogue on the critical issue of
security and development in Indonesia. “The issues of human security,
national security and international security are inseparable,” said
Coordinating Minister for Political and Security Affairs Susilo Bambang
Yudhoyono, “and they are an essential pre-condition for economic growth.”
He called for a significant reform of the security sector, including
appropriate on-budget financing and greater accountability and
transparency of public expenditures in security agencies. Chronic
under-funding of these institutions has led to a variety of institutional
distortions that need to be addressed so that these agencies can play a
more effective and accountable role in providing security for Indonesia’s
citizens. Civil society emphasized the importance of civilian oversight of
the armed forces. Bruce Davis, Director General AUSAID, remarked,
“Security is very much a development issue for Indonesia.” Donors
emphasized the importance of setting-up a new Working Group within the CGI
specifically dealing with security and development issues.
The Government of Indonesia and the international community recognize the
need of finding a peaceful solution to the conflict in Aceh based on
special autonomy in the context of a unitary Indonesian state. The donors
believe that rule of law and good governance, as well as long-term
economic development, are crucial to establishing trust in the integrated
operation and restoring the people's sense of security in the province.
Open humanitarian access to Aceh will help to promote this trust and
contribute to a solution. The Government of Indonesia took note of the
readiness of the international community to provide assistance to this
effort and briefed the donors that some international organizations have
been provided access to the province to provide humanitarian assistance.
This year, the CGI forum was redesigned to promote a more interactive and
open dialogue between the Indonesian Government and its development
partners through a day-long series of informal policy dialogues on the key
issues prior to the official meeting. Delegates welcomed this new format
as a step in strengthening the evolving partnership between Government,
civil society and the donors in addressing development challenges. “The
CGI forum itself must continually evolve in response to Indonesia’s
changing needs,” remarked Andrew Steer, the World Bank’s Country Director
for Indonesia. “The new spirit of this year’s meeting is a further step
towards a more genuine dialogue. We warmly encourage moves towards full
Indonesian leadership of the CGI process.”
The meeting was attended by senior government officials, including
Coordinating Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti,
Chief Justice Bagir Manan, Bank Indonesia Governor Burhanuddin Abdullah,
Coordinating Minister of Politics and Security Susilo Bambang Yudhoyono,
Coordinating Minister for People’s Welfare Jusuf Kalla, Minister of
Finance Boediono, Minister of National Planning/BAPPENAS Chairman Kwik
Kian Gie, Minister of Health Achmad Sujudi, Minister of Housing and
Regional Infrastructure Soenarno and Theo Toemion, Head of the Indonesian
Investment Agency. A representative of the Indonesian National Police,
Erwin Mappaseng, also attended. Over thirty donor agencies, both bilateral
and multilateral, as well as observers from civil society and the private
sector were present. A meeting with a broad range of civil society groups
representing community, environment groups, watchdog organizations, think
tanks, and academia was held prior to the CGI to elicit their views.
Next meeting: Coordinating Minister Dorodjatun announced that he had
invited the CGI to hold its next annual meeting in Jakarta at a date to be
determined.
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