Statement of the U.S. Delegation Consultative Group on Indonesia. December 11, 2003 Jakarta

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1 Statement of the U.S. Delegation Consultative Group on Indonesia December 11, 2003 Jakarta The US government appreciates the hospitality of the Government of Indonesia in hosting this gathering of the Consultative Group and welcomes the opportunity to work with Indonesia in addressing its current challenges. The timing selected for this, the thirteenth meeting of the Consultative Group on Indonesia, is auspicious for a number of reasons. As noted in the theme chosen for this meeting Progress in Implementing the Government s Economic Policy Package the Government of Indonesia and its partners in the international community wish to highlight the important steps Indonesia is taking towards meaningful economic reform and improvements to the investment climate following the completion of the successful IMF program. In addition, my government takes note that this is the second full CGI meeting to take place in calendar year 2003, and the ability of the Government to report on progress being achieved sends an important signal. The terrorist bombings on Bali in October 2002 and in Jakarta last August exacted a terrible toll in human lives and threatened Indonesia s economic recovery and the country s sense of security. The Indonesian government took swift action to deal with these threats. The bombings have provided new urgency to Indonesia s reform efforts and highlighted the importance of improved security and a strengthened justice sector as fundamental to sustained economic growth. We welcome the opportunity to pledge our support for Indonesia s efforts to combat terrorism and improve security as part of our overall efforts to help the economic and governance reform programs. Indonesia faces significant challenges in the coming year. In addition to economic challenges, two of the most important remain stronger security and justice sector reform. Strong security, good intelligence, a strong police force and an effective justice sector are critical to Indonesia s economic and democratic development. Strong security and a reformed justice sector are not only important in dealing with terrorism, but also in protecting Indonesia s democracy and the human rights of its citizens, and in spurring its economic recovery. Individuals need to know that the government will protect their right to free speech, their lives and property, regardless of where they come from, their language or religion. Investors need to be assured of the sanctity of their contracts and a fair hearing of disputes. Justice sector reform is important for social stability as well as economic progress. Just as investors want legal certainty, sanctity of contracts and legal recourse, individuals need democratic institutions capable of resolving disputes that might otherwise lead to violence. Improved security will come through increased professionalism, including larger and more accountable, transparent budgets for the police and military. As donors committed to improved governance and more effective management of public expenditures, we need 1

2 to work with the government on planning, training and technical assistance to bring about improvements in the security sector. Reform of the security sector will enable progress in a number of key development areas, from management of natural resources (including a reduction in illegal logging), to trafficking in persons and accountable governance. We are extremely pleased that the Government and the international community have decided to use this, the thirteenth Consultative Group meeting, to launch a new dialogue on the role of security in development. At the same time, we have watched with concern the ongoing military conflict in Aceh and the decision to extend the State of Emergency. We agree with the Government that any strategy for the permanent resolution of the Aceh conflict must address all aspects of the problem, including security, law enforcement, economic development and justice. The United States, together with many other donors, has long supported efforts towards a peaceful resolution of this conflict, within the context of a united Republic of Indonesia. We remain committed to that goal and to providing assistance for the social and physical reconstruction of Aceh and for the institutions required for just and sustainable development in the future. Providing such assistance, however, is not possible without open access to the province. We strongly urge the Government to establish open access to Aceh for non-governmental and humanitarian organizations, journalists, and foreign diplomats. In addition to addressing humanitarian and developmental assistance requirements in Aceh, we note the challenges that will be faced by the Government in implementing, in Aceh, the planned 2004 national elections. We look forward to discussing with the Government the role that international assistance can play in assuring free and fair elections in Aceh, as part of our support for the 2004 elections. The 2004 elections are a milestone in Indonesia s transition to democracy. For the first time, Indonesian citizens will directly vote for their President and Vice President. The United States has devoted significant resources in 2003 and 2004 for pre-election support focused on finalizing the electoral legislative framework, strengthening the independent National Election Commission, encouraging political parties to incorporate transparent and democratic processes, and helping civil society to effectively carry out their role in the elections. We look forward to continued and increased collaboration with the Government and our partners in the donor community as these programs move forward. Another key challenge faced by the Government is the provision of essential human services to the people of Indonesia. The economic and political crisis has had a significant, negative impact on education. Indonesia s commitment to a minimum of nine years basic education for all is now being effectively undone. Dropout rates at all levels of education have risen rapidly; university-level education is accessible to only about 12% of the population; and millions of school-leavers lack the skills needed to be productive members of the work force. Indonesia s massive decentralization in early 2001 shifted almost all authority and responsibility for primary and secondary education to local governments and the majority of local governments, legislative authorities and communities are ill prepared to manage basic education systems. 2

3 For these reasons, President George W. Bush announced, on October 22nd, a major new U.S. Government commitment to the school-age children of Indonesia. This six year, $157 million initiative will support programs that will work to improve the quality of education for all of Indonesia s children, in both public and private schools. Important work remains to be done in another essential area, the provision of quality health care services. We would like to recognize and applaud the work done since the joint Health Working Group was established by the Government and the international community last year. My government is firm in its belief that a healthy population is a critical pre-requisite to a moderate, stable and productive Indonesia. We are committed to continuing our support to preventive programs that save lives, and believe that controlling communicable diseases and improving maternal and child health remain among the highest public health priorities in Indonesia. We also recognize that these health conditions place a special burden on women, and urge support for activities that directly relate to improving their well-being. Finally, we encourage the Government and the international community to continue to make the investments in the health sector that are necessary to sustain and improve upon the gains in health status that have been made in recent years. Despite impressive gains on macro-economic policy, reflected in the strength of the rupiah and the stock market, real challenges remain. It is particularly critical at this juncture to attract the new investment required to power Indonesia s economic recovery and growth. Improvements in the overall business climate, continued efforts in legal and justice sector reform, and improved security will all be important elements of an improved investment climate. As stressed in yesterday s pre-cgi luncheon discussion on the Private Sector Investment Climate, key issues include reform of tax administration, reform of customs administration, consultation with the private sector on implementing regulations dealing with manpower and dispute settlement issues, and finalization of investment-supportive laws and implementing regulations on oil and gas, mining, energy pricing, electricity, telecommunications and transportation. Vitally important infrastructure development programs, as outlined yesterday by the Government, will depend on substantial capital investments. Resolution of the investment climate issues identified by participants in yesterday s luncheon will be particularly critical as decisions are made on these large capital commitments. Government policies that are supportive of increased trade are also essential to increased economic growth, and can have significant impact on poverty reduction. For example, recent analyses indicate that food consumption patterns are improving dramatically, and liberalized trade has been a major factor behind these improvements. We congratulate the Government for the forward-thinking policies that removed import monopolies on rice, soybeans, maize, wheat and wheat flour, and reduced numerous barriers to regional and domestic trade in cash and horticultural crops. The poor, who spend two-thirds of their income on food, and who predominantly work in agriculture and the rural economy, have been the major beneficiaries of this trade liberalization. Expenditures on nutrientrich foods meats, dairy products, fruits and vegetables have led the way in increasing real food expenditures of the poor. We urge the Government to maintain the very 3

4 positive momentum generated by the liberalized trade in agricultural products and remain committed to expanded trade and increased foreign and domestic investment as the engines for economic growth and job creation. Of continuing frustration to donors is the lack of a comprehensive forestry policy that has public support at the highest levels of Indonesian government, and which lays out a program for management of Indonesia s forest resources. We hope the Government will be able to provide a plan for protection of the remaining forests, including enforcement of total protection in some areas and sustainable management elsewhere. Such a plan would address the issues of subsidies to the wood, pulp and paper industry and the cessation of illegal logging. The devastating pace of illegal logging is destroying Indonesia s scarce resources, costing the government in taxes, hurting the environment, and contributing to flooding and landslides. The plan would have to be followed by solid implementation. Effective forest policy needs a concerted effort across ministries, local and central governments, private and public sectors. We understand that it will take time and leadership, and strongly encourage the Government to move forward immediately with the first steps of such an effort. Over the past three years, local governments have responded positively to the challenges posed by the deep and broad devolution of authority initiated by the central government. The division of labor among levels of government remains unclear and a sharp rise in local revenue-generating taxes hinders economic development. Decentralization remains a key strategy for maintaining Indonesian s territorial integrity by giving regions increased autonomy and fiscal control. The development of responsive and accountable local government, in turn, remains essential to rebuilding Indonesia as a democratic nation. Donor support for the development of effective local governments must continue. Negotiations between local governments and the center on revenue sharing and allocation of roles, responsibilities and budget will offer a continuing challenge. Local governments recognize the need to meet minimum standards for delivery of services, and efforts in this regard must be continued. In sum, the United States remains committed to providing strong support to Indonesia in its efforts to establish a vibrant democracy, to rebuild a thriving economy, to provide internal security and maintain its territorial integrity, and to increase the delivery of basic human services to its people. Our assistance will continue to share international experience in building democratic government, opening economic opportunity, making governance more transparent while helping protect Indonesia's poor from the worst collateral damage of social transformation. We look forward to working closely with the Government and other donors in programs that capitalize on these strengths. At the end of the day, however, the role of foreign donors in transforming Indonesia is inherently limited. That can only be accomplished through Indonesian leadership, courage and imagination. Ambassador Ralph L. Boyce 4

5 Consultative Group on Indonesia U.S. Pledging Statement December 11, 2003 Jakarta The U.S. Government commits to a continued level of support to Indonesia which recognizes the importance of Indonesia and the challenges it faces. The assistance aims to help the continued transition to a more secure, democratic and prosperous Indonesia. o A major new initiative will improve the quality of education in public and private schools, with the objective of preparing the children of Indonesia to be more productive members of the world economy and more effective participants in their own democratic society. o More effective delivery of and investment in basic human services (health, clean water and nutrition), in the context of decentralized responsibility for provision of those services, will be a second important new initiative. While the decentralization process has overstretched capacity to deliver basic services and created new inefficiencies, local authorities and communities remain essential partners in the search for solutions. o Accelerated economic growth will be the third key element of the USG program, aiming to reduce poverty through increased private sector investment and the creation of new jobs. Programs will focus on improving the trade and investment climate and strengthening economic governance, with substantial assistance for anti-corruption and counter-terrorism initiatives. o Assistance for improved democratic and decentralized governance will focus on the strengthening the executive, legislative and judicial institutions that must deliver the benefits of democracy and improved governance to the people of Indonesia. Particular attention will be focused on the implementation of critical reforms related to combating corruption, improving the justice sector, and protecting human rights. o The U.S. Government assistance program will support Indonesia s domestic and regional efforts to prevent, eradicate and deter the threats posed by terrorism to its national security and democratic transition. We welcome the opportunity to pledge our support to Indonesia s efforts to combat terrorism and improve security as part of our overall efforts to help the economic and governance reform programs. FY 2004 Pledge Amount of the United States Government* Development Assistance Funds Child Survival and Health Funds Economic Support Funds USDA FFP/416(b) USAID PL 480 Title II Trade and Development Agency Public Affairs Scholarship Counter Terrorism TOTAL $ million $29.25 million $60 million $ million $10.6 million $1 million $1.595 million $5.76 million $ million** Notes: * 2004 commitments subject to passage and signature of FY 2004 appropriations legislation. ** Excluding Overseas Private Investment Cooperation (OPIC), which provided $350 million in loan guarantees in FY FY04 has yet to be determined. 5