Robert Go, Jakarta – Major donors, who pledge billions of dollars in loans to Indonesia on a yearly basis, called on the government yesterday to start making progress on its reform promises.
Donors belonging to the Consultative Group on Indonesia (CGI) – which had its mid-year meeting in Jakarta yesterday – publicly noted positive economic developments that have taken place here over the past few years.
For instance, inflation of 6.91 per cent year-on-year in May is hitting a three-year low. Indonesian stocks have risen by about 19 per cent this year alone, and the index is outperforming other emerging markets.
The rupiah has seen spectacular gains. At the 8,300-level, it is much stronger compared to the time before President Megawati Sukarnoputri took office almost two years ago. Lenders welcome "signs of renewed confidence in Indonesia"s economy'.
But beneath the sugar-coating, the sense is that Jakarta has yet to make significant, if any, progress on reforms aimed at building a healthy foundation for sustained economic development.
Mr Andrew Steer, the head of the World Bank in Jakarta, put it diplomatically: "If Indonesia could make genuine progress on the investment climate, governance and legal reform – as it has on macroeconomic policy – it could again become one of the brightest performers in East Asia."
Japan's envoy to Jakarta, Mr Yutaka Iimura, said: "Now economic stability has been achieved, the important task ahead is to push economic growth to a higher level by facilitating private investment."
Other donors, however, privately expressed exasperation with Jakarta's progress with reforms and said that they were concerned about the country's poor investment climate, messy decentralisation process, rampant corruption, the lack of rule of law in parts of the country, and declining infrastructure.
Those are the same issues that donors have previously and consistently mentioned as problems for Indonesia, and which Jakarta has promised to address year after year.
A delegate at the mid-year meeting of the CGI in Jakarta yesterday said that Indonesia "exudes a sense of uncertainty", especially when it comes to investment policies.
Other experts said that without ST Telemedia's S$1.2-billion purchase of telecom company Indosat last year, the country's investment profile looks "less shining".
Donors said reports of the proliferation of local taxes, a direct result of the decentralisation policy, diminish investors' appetite for Indonesia.
On corruption, a Western delegate said: "There seems to be no decline in corruption. Actually, reports say corruption is on the rise, and that is disturbing." Another lender representative said that Indonesia had actually reneged on other reform promises, which was why those issues, including liberalisation of the sugar and rice markets and judicial reforms have been dropped from the table during the CGI meetings.
So what is keeping donors on their rah-rah train for Indonesia? A source close to both donors and the government said lenders do not want to "spoil the party" and "dampen the spirit of recovery that Indonesia is seeing right now".
Indeed, the World Bank is willing to raise its loan pledges to Indonesia this year by 18 per cent if it becomes more accountable over the use of the funds. The bank is willing to lend up to US$1 billion, from a pledge of US$850 million.