Opening Statement. Dorodjatun Kuntjoro-Jakti Coordinating Minister for the Economy Republic of Indonesia

Transcription

1 Opening Statement by Dorodjatun Kuntjoro-Jakti Coordinating Minister for the Economy Republic of Indonesia Consultative Group for Indonesia Bali January 2003 Mr. Chairman, Ambassadors, Distinguished Delegates, Ladies and Gentlemen, On behalf of the people of Indonesia, and the Indonesian Government, I welcome you to the 12 th meeting of the Consultative Group on Indonesia. Let me firstly thank the many people that have made this meeting possible, the World Bank with their annual assessment of the Indonesian economy and all of you for joining this forum. The CGI is one of the key forum for the Government to explain its plans and programs for the year ahead in this case and we appreciate and value the opportunity this provides for open and frank discussion and feedback. I apologize that we don t have the opportunity to meet on bilateral sessions scheduled for yesterday. As you are aware pressing events kept us in Jakarta. Given the importance of these bilateral sessions to our mutual 1

2 programs I hope we can make them over the next two days in Bali or in the following weeks in Jakarta. I also hope you share with us the importance of holding this year s meeting in Bali. Obviously it is important to help the economy of Bali and restore confidence to Indonesia but we believe your presence also acknowledges the October tragedy that occurred here and highlights the steps toward recovery while also the difficulties ahead. What better forum than the CGI to help us determine how to best work together to make sure for a rapid recovery of Bali and also tourism in Indonesia. Let me now provide an overview on for the next two days sessions. When we look back at 2002 we have a decidedly mixed impression of what it has meant for the recovery of Indonesia. The difficult and painful price hikes which we undertake since 2000, combined with policies to address domestic debt, the acceleration of the sale of IBRA assets and resolve legal and corporate debt problems put Indonesia back on the path to fiscal sustainability and macro stability. The peace breakthrough in Aceh, reductions in the level of conflict in other regions, and the excellent performance of the police after the Bali bombing have greatly improved the security climate. However, uncertainty and weaknesses in the global economy after the September 11 th and the economic shock after the attack in Kuta have hurt growth and investment. Still much was accomplished in 2002 and despite international uncertainties we expect a better prospect in In fact 2003 will be important for another reason. In addition to solidifying economic foundations we must also put in place the foundations for the 2004 election, the first ever with a direct election of the president. We look 2

3 forward to your support and understanding during this period. The election will be a complicated and expensive undertaking and we will be asking our friends in the CGI for technical and financial resources to make it successful. When we took office around 17 months ago, in August 2001, in our assessment economic problems which include a distorted exchange rate, high and rising inflation and interest rates were due to two things. The first was the inability to deliver on commitments to the People s assembly (the MPR) to bring down misdirected and distorting subsidy levels to reduce budget deficit pressures. The second was the poor working relationship the international community and the uncertainty this created for our budget and particularly its financing. These uncertainties had thrown Indonesia off its recovery path and were jeopardizing the nation s ability to transcend the crisis. Thus restoring macroeconomic stability and our relations with the international community were our highest economic priorities. And restoring macroeconomic stability has not been easy. We have had to make up for lost time in reducing subsidies and raising revenues while keeping the lid on spending. As I noted this was done while the economy was hit hard by events both within Indonesia and outside. We have only to look at the response to the latest tariff/price hikes to see the problems we face in the efforts to address the serious fiscal situation are causing. This last round of increases was taken in line with directives the government received from the Consultative Assembly (through the Five Year Development Program the Propenas) and reaffirmed in this year s budget. However, the government and parliament underestimated the sense of suffering it would create. While the opposition to these price 3

4 increases has not generated the level of demonstrations seen in the past feedback from around the nation indicates that sentiment is widespread. The risk of social unrest has prompted us to agreed with Parliament to reduce the planned increases and therefore protect people against the currently high international fuel prices. Nonetheless we are doing this in a way that will allow us to continue with our fiscal consolidation efforts and this year s budget deficit is not expected to rise above the 1.8% of GDP currently planned. Not increasing this year s budget deficit is also critical to the government s program as we are committed to continue our effort to balance the budget by 2005 and dig our way out of debt. In fact I know that many of you are concerned about budget financing in I will leave it to the Minister of Finance to address these budget issues in more detail, but I will add that our course remains, with your support, to restore financial normalcy and end the IMF program at the end of this year. I want to add that these critical economic issues were not the full extent of the government s reform agenda. As I indicated we are also working on major political changes, reform of the legal system and the civil service and the decentralization of authority to the regions. Any of these would be a major agenda in its own right. And, while slower than we might like, I believe that we are making progress in almost all areas. For example, the wealth commission has functioned well in a noncoercive role, and should become an effective component of the recently created anti-corruption committee where there will be enhanced investigatory power. We have also passed an anti-money laundering bill, appointed key officials and are now finishing off the establishment of the Financial Transactions Reporting and Analysis Unit PPATK). Combined 4

5 with an Anti-terrorism law (replacing the government regulations in place of law that proceeded it) we believe that we have powerful new tools to address combating terrorism and stop it s financing. I do not want to imply that everything has gone smoothly. A key problem has been the magnitude of the reform agenda and the limited time, resources and organizational capacity of policy makers. The sheer complexity and number of issues have often distracted rather than focused the nation s attention. And this has been compounded by our inability to clearly articulate convincing reasons for the measures that need to be taken. I can only say that we will try to do better. Now let me turn to the agenda for The government s program for 2003 is based on the Repeta or action plan we presented to Parliament last year. In brief we expect to shift our focus from macroeconomic stability that was the focus in 2002 to microeconomic issues in More specifically we have identified three program priorities. The first is increasing investment, exports and employment. The second is continuing to reduce the burden of foreign and domestic debt. And the third is increasing investment in infrastructure to support accelerating economic growth. A more extensive description this program can be obtained from the Coordinating Ministry s website. The Minister of Finance, the Minister for State Owned Enterprises, and the Chairman of Investment Board (BKPM) will fill you in on efforts to improve the investment climate, reduce debt and accelerate infrastructure in their remarks later this morning. But this effort has to be aimed at something, and that something is the elimination of poverty and the threat of poverty for all Indonesians. 5

6 This is no simple task, it combines effective macroeconomic policy that accelerates growth and controls inflation with government expenditure programs to improve education, health and infrastructure and an assessment of the role that government policy in whatever area may have on poverty. I am pleased to report that we have made significant progress on a Poverty Reduction Strategy and this should assist us in addressing these goals by mainstreaming our poverty focus. The details of our approach will be covered in tomorrow s session. However we have to admit that reducing poverty or even holding our own is going to be difficult this year. The bombing on Bali has put in jeopardy the livelihoods of 100s of thousands of people and will increase poverty here and in the rest of Indonesian, perhaps dramatically especially with continuing uncertainty in the international environment and relatively modest growth here in Indonesia. The Coordinating Minister for Social Affairs will address the situation on Bali and our attempts to deal with it. However, I want to emphasize three things. First, we need the help of the international community in dealing with the aftermath of this serious tragedy. Second, in addition to humanitarian and development assistance we need help upgrading security, including training and equipment for the institutions involved. And third, we ask that you to consider carefully the merit of the travel warnings in place. I am sure that you agree that the security situation here on Bali is substantially improved, that we have done a remarkable job in tracking down the terrorists involved. We know the importance that all nations place on the lives of their citizens. However there is an economic dimension to the fight against terror. With your assurance that it is now, with the proper precautions, okay to return to 6

7 Bali and Indonesia the economy on this island and all Indonesia can grow faster providing us the breathing space to advance the difficult and far reaching reform agenda ahead. As I have indicated reforms have not proceeded evenly. We are pleased with our macroeconomic progress but know that we can not sustain it if we do not make progress on governance. In fact two of the most difficult areas for reform areas are on the table this CGI including the justice sector and forestry. While thus far we have made disappointing and uncertain progress in reforming our legal institutions we believe that the pace of reforms is picking up. I think you will be interested in our presentation of an interesting institutional audit being undertaken by the Supreme Court, and of developments with the Judicial Commission. Unfortunately reforms in forestry sector have proven to be extremely complex and difficult as they cross-cut interests in the central government and the regions. We must persevere in finding practical and effective ways to deforestation which has been accelerating and even begin to repair the damage. The key of course is to prevent illegal logging. It is now clear that this will require looking at the structure of the logging industry, the regulations and their implementation. The Ministry of Forestry will present the priority programs required to do this and the Coordinating Ministry will work with them to develop an inter-agency taskforce [forum] in this important sector. Progress in the area of decentralization has on the whole been better. For example, we are pleased that we have received almost all regional government budgets. This should give us a better picture on how government resources are being used as regional governments fund 7

8 development priorities subject to the oversight of their own legislatures and citizens. I also expect to continue our dialogue on on-lending, local regulatory regimes and procurement improvements. We need to do more on regional barriers to trade and investment but we believe that the local governments are learning the importance of responsible policy here. We intend to accelerate this process with the introduction of improved an improved rating system that will allow regional governments to assess their performance relative to their peers. This should assist the private sector and regional governments in finding a better and perhaps more transparent balance between revenue needs and business and consumer interests. In another session tomorrow morning, the National Development Planning Minister and the Finance Minister will look at the issues in aid effectiveness. It is clear that this government and the next one are going to suffer from relatively limited resources. The key is to make the best of them. This goes beyond aid effectiveness to the use of all government resources. We need to use our own and the resources we receive from you more effectively, we need to monitor them more closely, and evaluate what has been achieved better. Tomorrow we will share our thinking and programs in this area and look forward to a dialogue on this topic. Finally let me add my appreciation to those of you who have been working with us on debt swaps. The programs here are win-win. We are delighted to reduce our debt stock as that is one of our key programs. At the same time this program allows your governments to dedicate the resources saved to critical programs that you support. For example we now have a program with the German government that exchanges debt liabilities for increased assistance to basic education and we are working 8

9 on another such project with them. The government would like to continue and even expand this effort in the year ahead. sessions. Let me now summarize a minute before we move to the follow-on From a macroeconomic perspective, despite a number of setbacks and remaining areas of concern, last year s economic outcome was positive and puts us in a position to push ahead with a microeconomic agenda designed to reduce high-cost economic barriers and thereby improve the investment climate. However, we have to be realistic. The government s resources, financial and human are scarce, and we are not as good at making our case to the public as we would like. As I have said it does us no good to promise, nor for you to ask for more than we can deliver. We need to set realistic targets, targets that recognize that 2003 is the run-up to an election year. We expect that by mid year the world economic situation will begin to clear and that investment and growth will continue to pick up but there are no certainties. Government policies are going to be subject to a political microscope. We need to prioritize our efforts carefully, focus on the most important areas for improvement and then execute the reforms needed to keep momentum. To do this we will need to work effectively with our friends in the CGI and improve coordination. We ask for your continued financial support and assurance as Indonesia moves forward on its reform agenda. Thank you 9