Jakarta – The World Bank will tell foreign aid donors set to decide on fresh loans to Indonesia that the country's government system needs major reforms, according to advance briefing notes for a conference next week.
"The government must change the way Indonesia governs itself – from its political process, to its legal system and its civil service, the role of the military to the way it handles its finances," the Bank concludes.
The brief was prepared for the conference of the Bank's Consultative Group on Indonesia (CGI) next Tuesday and Wednesday in Tokyo. It will be presented to CGI donor nations and non-government organisations before they discuss their loan commitment to Indonesia. Indonesia has been seeking 4.8 billion in loans from the CGI for this year.
The Bank says there has been "some progress" in improving governance in the sprawling island chain republic. "But the rule of law in Indonesia is still far from assured," the brief's executive summary reads. It calls for a "credible, comprehensive plan ... with strong leadership, and early actions that signal commitment," a process it declares "is due".
The Bank's Vice President for East Asia and the Pacific, Jemal-ud-din Kassum, said here Friday donor nations were looking for real progress in restoring security to West Timor before pledging full support for release of the loan.
The situation in the half-island province was placed under world scrutiny last month when three foreign UN staff were killed by East Timorese militiamen, who are hampering the repatriation or resettlement of 130,000 refugees still living in squalid camps there.
Indonesia is under intense pressure from the international community to disarm and disband the militias. "It's clear that continued visible progress in this area will be very important to secure the support of some donors," Kassum told journalists.
He also pointed to restructuring of the banking sector as a key to lifting the confidence of foreign investors. These have remained wary of Indonesia despite positive economic indicators such as controlled inflation, high export rates, real wage growth and boosted revenue from high oil prices.
They were looking for signs of sustainability, Kassum said. "To get sustainable growth, restructuring is important ... that is why the reform agenda remains critically important," he said. "Political conditions, regional unrest, and periodic outbursts of violence combined with ... policy slippage on the restructural reform agenda can still hurt the recovery process," he warned.
The Bank's Jakarta representative, Mark Baird, cited violence, political uncertainty and the role of the military as factors that were destroying investor confidence in the otherwise positive-looking economy. "That element colours everybody's perception of Indonesia both domestically and externally," Baird told journalists.
The briefing report also emphazises the need for visible results in decentralisation and fiscal consolidation, poverty reduction and good governance.
Positive moves cited in the report were the separation of the Indonesian police from the military, the establishment of watchdogs of the government and judiciary, and the delivery of some bankruptcy judgements. "Emerging political debates inside and outside parliament promise more such actions to come," the executive summary said.