Jakarta – The gap between transparency and accountability within Indonesia's public sector is a major challenge to its economic reform program, according to Mark Baird, World Bank country director for Indonesia.
Baird said that while political reforms since the fall of the Suharto government have enhanced transparency and thus made the country's problems much more evident, there is a huge gap between that level of transparency and accountability.
"We don't really have proper accountability to deal with these problems and that gap is posing a major challenge to Indonesia," he said in a presentation at the launch of Phase II of the Technical Assistance Management Facility aid project administered by AusAID.
The solution is to maintain transparency while increasing accountability, under the leadership of new president Megawati Sukarnoputri's government.
The latest letter of intent from Indonesia with the International Monetary Fund contains some measures for enhancing accountability but such reforms "cannot be imposed from the outside", Baird said. "Government reforms should not be a knee-jerk reaction to donor demands," he said, adding they should be formulated in line with Indonesian culture and practice to reflect ownership by the people, rather than ownership by the IMF.
Baird said while the IMF's reform agenda is critical to poverty alleviation, it has been criticised for potentially creating civil unrest through controversial policies such as fuel subsidy cuts. He said such policies, which may hurt the poor in the short-term and trigger social unrest, must be assessed more in terms of their medium-term impact on poverty reduction and economic stability. "That's the type of analysis we need to make for all key policy decisions in Indonesia," he said. "This short-term priority for stability is essential but in the medium-term if the recovery is to be sustainable, Indonesia needs a much more fundamental reform agenda."
Under pressure from the International Monetary Fund, Indonesia earlier this year started cutting the fuel subsidy, leading to increased fuel prices and creating inflationary pressures on other goods and services. It plans to eventually eliminate the subsidy altogether. "The first people to suffer from inflation is the poor," Baird said. However, he said if the money saved from the subsidy cut is used effectively to reduce the budget deficit and reallocate spending to poverty alleviation programs, then raising fuel prices will actually benefit the poor.
"If we cannot get a healthy financial sector, if we cannot get a performing civil service, if we cannot get a judiciary that upholds the law, then we will not be able to sustain growth in this country and (increase) investor confidence at anywhere near the levels needed to create jobs and reduce poverty," he added. He said a stable economy that encourages investment and growth is critical to reducing poverty long-term, despite the short-term consequences of making tough economic decisions.