RI needs reform body: WB

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Thu, 11/05/2009 11:53 AM  |  Business

Indonesia may need a regulatory reform commission to tackle coordination problems between economic ministries in a bid to boost investment and accelerate economic growth after the economic crisis, the World Bank says.

There have been coordination problems between ministries that have partly hampered faster growth, World Bank lead economist William E. Wallace said in a press briefing Wednesday.

The problems will need to be solved quickly as the government wants to achieve 7 percent annual economic growth by 2014.

President Susilo Bambang Yudhoyono has installed Kuntoro Mangkusubroto to head a presidential unit to supervise and manage overall economic development, taking into consideration that sometimes the role a coordinating minister for the economy is not enough to solve conflicts between ministries.

"Difficult coordination problems will require something like a regulatory reform commission with the mandate to balance interests, addressing both policy and implementation issues," Mr. Wallace said.

Coordinating Minister for the Economy Hatta Rajasa has repeatedly said the government will focus on "de-bottlenecking" problems that hold back economic growth.

Analysts said while Indonesia's economy had a significant average growth rate of about 5 percent during the last five years, economic growth was "imbalanced" as the real sector was often overlooked.

"Indonesia does the macro well, but not the micro," said Wallace, referring to slow growth in key business sectors, notably in manufacturing and agriculture.

The government should introduce the right policies to improve the investment climate, including simplifying *or removing* barriers to investment so as to attract foreign direct investment (FDI), he added.

World Bank senior economist Shubham Chaudhuri said a basic calculation showed that for every 1 percent of the gross domestic product (GDP) allocated for infrastructure, the economy would gain an additional 1.5 percent in growth.

"But it depends to which sector *you allocate the money*," he said.

Hatta said Indonesia would need investment of Rp 2,100 trillion (US$212 billion) annually to boost infrastructure projects.

Wallace said the government should also ensure there was a social contract between employers and workers on severance pay to provide security for workers, without discouraging job creation.

If labor-intensive industries improve, the economy will help increase prosperity to reduce the number of poor people, which stands at 32.53 million, or 14.15 percent, according to latest data by the Central Statistics Agency (BPS).

The World Bank estimated Indonesia's economy would expand 4.3 percent this year, before accelerating to about 5.4 percent in 2010.

While the skies look clear for Indonesia's economy, risks remain as financial markets may still be volatile due to rapid short-term capital inflows, said World Bank experts.

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