[Nasional-e] Opening Statement by Dorodjatun Kuntjoro-Jakti

[Ambon]

THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS REPUBLIC OF INDONESIA
Gedung Utama Departemen Keuangan Lantai IV, Jl. Lapangan Banteng Timur
No.2-4 Jakarta Pusat
Tel: (021) 380-8384    Fax: (021) 344-0394    Website: http://www.ekon.go.id


PRESS RELEASE:  FOR IMMEDIATE RELEASE

January 21, 2003


Opening Statement by Dorodjatun Kuntjoro-Jakti

Coordinating Minister for the Economy Republic of Indonesia

At the 12th Meeting of the Consultative Group for Indonesia

Bali, January 2003



            On behalf of the people of Indonesia, and the Indonesian
Government, I welcome you to the 12th meeting of the Consultative Group on
Indonesia. Let me first 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
forums for the Government to explain its plans and programs for the year
ahead – in this case 2003 - and we appreciate and value the opportunity this
provides for open and frank discussion and feedback. I apologize that we did
not have the opportunity to meet in 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 programs I hope we can
make up 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 in Indonesia but we also believe that your
presence acknowledges the October tragedy that occurred here and highlights
the steps toward recovery while also taking into account the difficulties
ahead. What better forum than the CGI to help us determine how to best work
together to assure a rapid recovery for Bali and also tourism as a whole in
Indonesia.

            Let me now provide an overview on for the sessions taking place
during the next two days.

            As 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 have undertaken 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 demonstrate a forward
movement toward stability.  However, uncertainty and weaknesses in the
global economy after September 11th 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
2003.  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 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:  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.

            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 increases has not generated the
level of demonstrations seen in the past, feedback from around the nation
indicates that negative sentiment is widespread. The risk of social unrest
has prompted us to agree with Parliament to reduce the planned increases and
therefore protect the poor 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 2004. 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 non-coercive 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 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. It has
been anything but that.  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 2003. 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 2003. 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.  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.
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 hundreds of thousands of people and will
increase poverty here and in the rest of Indonesia, perhaps dramatically and
especially with the 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.  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 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 cannot 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 bisect interests in the central
government and the regions.  We must persevere in finding practical and
effective ways to eliminate deforestation which has been accelerating and at
the same time find a way to begin to repair the damage. The key to this
issue 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 development
priorities subject to the oversight of their own legislatures and citizens.
I also expect to continue our dialogue 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 on another such
project with them. The government would like to continue and even expand
this effort in the year ahead.

            Let me now summarize a minute before we move to the follow-on
sessions.

            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.
We must simply continue to try to do the best we can.

     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