Title: The World Bank Group in Indonesia Investing in Institutions for Inclusive, Sustainable and Competitive Indonesia
1The World Bank Group in IndonesiaInvesting in
Institutions for Inclusive, Sustainable and
Competitive Indonesia
- Shubham Chaudhuri
- World Bank, Indonesia
Jakarta, June 4, 2008
2Outline
- Indonesia 2008 Doing Well, But Could Do Even
Better - Indonesia 2012 and Beyond The Development Agenda
- World Bank Country Partnership Strategy
Investing in Institutions for Inclusive,
Sustainable and Competitive Indonesia
3Indonesia 2008 Doing Well, But Can Do Better
4Indonesia Doing Well - An Emerging Dynamic
Middle Income Country
- Major Political transformation over the last 10
years - Democratization
- Big Bang Decentralization
- Historic Aceh peace agreement (2005) is largely
sustaining - Commitment to good governance
- Growing sense of confidence
- Macroeconomic policies and related reforms have
been conducted well - Growth and macroeconomic performance have been
increasingly strong - Prudent Fiscal Management
- The financial sector is on a much stronger
footing and Indonesia is now accessing
alternative sources of finance - Investment is still low but rising fast
5Robust Growth
- In 2005, per-capita real GDP for the first time
exceeded the high that had been reached in 1997,
before the peak of the crisis - and, in 2007, growth accelerated to a ten-year
high of 6.3, despite a slowing global economy
6Prudent Macroeconomic Management
- Lower budget deficits, a much lower debt-to-GDP
ratio, and manageable inflation (though rising
recently)
7.but Slower Progress on Other Dimensions.
8Stability And Growth Are Delivering Less Poverty
Reduction
- The poverty rate has been declining, but many are
near poor and remain sensitive to shocks
(including recent increase in soy price, palm
oil, rice)
9Delivering Fewer Jobs as the Demography Shifts
the Labor Force Rapidly
- Unemployment fell slightly in 2007, but remains
high with increasing high school and university
graduates coming into the labor force
Changes in Labor Force (,000) Changes in Labor Force (,000) Changes in Labor Force (,000)
2002-04 2004-06
Youth (15-24)
HS gt 751 921
lt HS -212 123
Adults
HS gt 1,477 2,529
lt HS 1,178 -1,1158
Total
HS gt 2,229 3,451
lt HS 966 -1,035
10Education Remains A Challenge
- Access While Indonesia has achieved nearly
universal primary education at 93.5, junior
secondary net enrollment is still low at only
65.2 and for the poorest quintile it is at only
50
- Quality The 2003 PISA math exam results indicate
that Indonesia scores low and lags behind in
student learning
11Transitions To Secondary Tertiary Education
Are Lagging..
12Under-performing On Some Critical Health Outcomes
13Environmental Degradation and Unsustainable
Depletion Of Resources
- two-thirds of Indonesians live in rural areas and
are directly or indirectly dependent on common
land, coastal, and environmental resources that
are being rapidly depleted - the other third is affected by environmental
conditions in urban areas, from water and air
pollution, congestion and noise - deforestation rates in Indonesia are amongst the
highest in the world and Indonesia is arguably
the third largest source of greenhouse gas
emissions, behind only the U.S. and China - health and other costs attributable to water
pollution and limited access to safe water and
sanitation have been estimated to be roughly 2
percent of GDP annually - annual costs of air pollution to the Indonesia
economy have been calculated at around 400
million per year
14.and There Are Emerging Risks.
15 Risks from Turmoil in Global Financial Market..
- turmoil in global financial markets is raising
the costs of meeting Indonesias financing needs,
despite its strong fundamentals
16- Risks from Continued Increases In Fuel Food
Prices
17Indonesia 2012 and Beyond The Development Agenda
18Indonesia 2012 and Beyond The Development
Agenda
- Governments development agenda is articulated in
the medium-term strategy (RPJM) for 2004-2009,
which specifies three broad and multi-faceted
goals - A safe and peaceful Indonesia
- A just and democratic Indonesia
- A prosperous Indonesia
- The process of drafting the 2010-2014 RPJM has
begun and early indications show that the
unfinished agenda of the current plan will frame
the broad priorities of the next one - However, the upcoming 2009 presidential and
legislative elections necessarily make any
statements about the next governments
development agenda somewhat speculative
19Indonesia 2012 and Beyond The Development
Agenda (contd)
- ACCELERATING growth by making Indonesia more
COMPETITIVE - Building a more INCLUSIVE Indonesia by making
growth more BROAD-BASED, improving service
delivery, and enhancing voice - Working towards a GREENER Indonesia by making
growth more SUSTAINABLE through better management
of natural resources and the environment - Making Indonesia more RESILIENT by better
planning for and management of risks
20Accelerating growth The Potential
- Indonesia has the potential to achieve the rates
of growth it achieved prior to the crisis
- ..by making the most of Indonesias resource
endowments while developing globally competitive
clusters elsewhere - by relieving infrastructure bottlenecks and
remedying weaknesses inconsistencies, and
reducing uncertainty in the regulatory and
policy environment
21Making growth Inclusive The challenges
- Raising the returns to the main asset of the
poorlabor - by revitalizing agriculture and the rural
economy - and facilitating the transfer of labor from
low-productivity activities in agriculture to
higher value-added activities elsewhere - Poor quality and limited access remain areas of
concern for basic education, healthcare, water
and sanitation services - Improving the allocation and efficiency of
expenditures is the main challenge
22Raising the returns to the main asset of the
poortheir labor
- Per-worker productivity in Indonesia is low,
regardless of sector and not increasing very
rapidly
23Facilitating the transfer of workers out of
low-productivity agriculture
- while the movement of workers out of
agriculture, the lowest productivity sector, has
stalled in Indonesia since the crisis
24Making Growth InclusiveProviding Quality
Education For All
- Remarkable progress in primary and secondary
enrollment rates but challenged in improving
quality and increasing access across the country - Uneven spatial distribution and quality of
teachers (through remedial efforts in place) - Positive outcome from the BOS system of direct
transfers to schools - Recently introduced CCT program is aiming to
improve education access for the poor - Overall progress is hindered, however, by the
unfinished decentralization agenda, which has
left responsibility and accountability for many
education areas vague
25Making Growth InclusiveRestructuring the Health
System
- Transformation to a more sophisticated health
system in the medium term needed - The immediate challenge is to improve quality,
increase access for the poor and reduce spatial
disparities - Accountability of health care workers is hindered
by civil service and decentralization
regulations, which limit the authority local
governments to manage their staff - Inefficiencies and poor quality in the health
sector have resulted in low utilization rates of
both public and private facilities, and high
rates of self-treatment, and is a major source of
inequity in healthcare access - Public health spending for secondary care tends
to be regressive, although the Askeskin program
of subsidized healthcare for the poor is
attempting to change this
26Financing Is Not The Only or Even The Main
Challenge
- Improving the allocation and efficiency of
expenditures and providing adequate services in
the context of decentralized Indonesia is
27Ensuring Growth Is Sustainable The Challenges
- Working towards a GREENER Indonesia by making
growth more SUSTAINABLE through better management
of natural resources, and the environment - Managing Indonesias forestry and marine
resources sustainably while providing adequate
livelihoods - Meeting Indonesias energy needs without
sacrificing its environment - Making Indonesias rapidly growing towns and
cities livable
28Building Resiliency The challenges
- Making Indonesia more RESILIENT by better
planning for and management of risks - Preparing for climate change
- Strengthening institutions and capacity for
planning for managing disasters - Designing social protection schemes that buffer
the population from the adverse impacts of shocks - Enhancing the capacity of and coordination
mechanisms among financial sector regulatory and
supervision institutions to deal with systemic
shocks from either external or internal sources
29Why It Will Take Time And Commitment
- Because of the dramatically changed circumstances
Indonesia finds itself in, and its own ongoing
and as yet incomplete transition, there is no one
single policy that could quickly help Indonesia
to complete its transition to modern economy - Democratization and decentralization have
fundamentally changed decision-making processes
and accountability structures within government
and the broader public sphere - The tasks facing the government have themselves
become more difficult, in part because of
Indonesias own past successes The Middle Income
Transition - The changed global economic environment implies a
different, though equally important, role for the
state than in the past - These changes reveal weaknesses in the processes
and capacity for formulating and implementing
policy and have made the process of implementing
reforms a more challenging and time-consuming task
30Strengthening Public Institutions And Processes
- Restructuring and strengthening the core
processes, human resources and institutions for
formulating and implementing policy - Reform of public sector systems procurement,
financial management and budget execution,
project design, audit, ME - Clarify institutional responsibility for civil
service reform, improve incentives and governance
and revise the legal framework - Making the most out of decentralization
- Improve the framework (and its implementation)
for the division of responsibilities between
national and local governments - Improve local government capacity and
accountability - Sustaining the focus on Governance
- Build on the new institutions created (KPK,
Judicial and Police Commissions, etc.) that have
begun to deliver tangible results - Raise the focus on the deeper structural reforms
needed in the Judicial and Legal system - Replicate existing success stories at the local
and national level (MoF, LG reformers, etc)
31The World BankInvesting in Institutions for an
Inclusive, Sustainable and Competitive Indonesia
32Changing Role of International Development
Partners in a Middle Income Country (MIC)
- New partnership model required with Indonesias
exit from IDA and the post-CGI environment as a
MIC - We are moving to adjust our paradigm
- From Aid Agency to Development Bank
- From WB projects to GOI programs
- From trying to solve Indonesias problems to
helping Indonesia find and implement the
solutions - From managing transactions to managing
relationships
33Strengthening and Using Country Systems
- World Bank financing represent a small portion of
Government budget focus on leveraging impact
through strengthening institutions - Public institutions grow by delivering services
and policies effectively and thus gaining trust
of the citizens - The World Bank works in support of institutions
that have effective leadership and are able to
improve performance - WBs aim is not to fill in Indonesias
development challenges, rather to support
Indonesian institutions that would fill this
challenge
34The World Bank new Country Partnership Strategy
Investing in Institutions for an Inclusive,
Sustainable, and Competitive Indonesia
- Aim
- The World Bank helps accelerate transition to
modern governance through investing in Indonesian
institutions help create replicable success
stories at national government, local government,
and public sector levels - Approach
- Building supply of better governance - Investing
in country systems (supply side) - Stimulating demand for better governance
building on CDD approaches
35Indonesia CPS Direction for Future Program
36Outline
- Indonesia 2008 Doing Well, But Could Do Even
Better - Indonesia 2012 and Beyond The Development Agenda
- World Bank Country Partnership Strategy
Investing in Institutions for Inclusive,
Sustainable and Competitive Indonesia
37Thank You!