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Discourse: The knowledge bank that listens to the people

World Bank managing director Sri Mulyani Indrawati believes that the global financial institution must practice what it preaches to its member countries on governance, including the principles of openness, transparency and accountability

The Jakarta Post
Fri, April 29, 2011

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Discourse: The knowledge bank that listens to the people

W

em>World Bank managing director Sri Mulyani Indrawati believes that the global financial institution must practice what it preaches to its member countries on governance, including the principles of openness, transparency and accountability. The former Indonesian finance minister, who joined the bank in June, talks to Endy M. Bayuni of The Jakarta Post about some of the challenges she deals with in helping with the development in the three regions she oversees: East Asia Pacific, Middle East and North Africa, Latin America and the Caribbean. This is an extract of the interview in her office in Washington, DC.

Question: Is the Indonesian experience of the last 13 years in pushing the twin goals of development and democracy going to be relevant for Egypt and Tunisia now that they are also embarking on democratization efforts?

Answer: The experiences of Indonesia and other countries in Eastern Europe and Latin America are relevant. The World Bank as a knowledge bank offers this vast experience and knowledge across the board to countries in critical transition. President Robert Zoellick recently held a meeting with various stakeholders in the Arab world, from the youth, NGOs, women organizations and politicians. It is important for us to
understand the actual voice of the people. We learned that they need to restore the economy in order to create jobs, create a more inclusive growth and the voice of the youth says it wants social accountability and transparency.

This resonates with our experience in Indonesia, of which I was involved in quite depth. The country had to have ownership of wanting to change, that this was something that the people strongly demanded. Then you must have good sequencing and a clear idea of how you are going to navigate through the complex transition. Managing the process, designing the sequencing, always listening to the people and ensuring that the decision will not defeat the goal of development itself, all these resonate very strongly with the situation in the Middle East today.

Is governance, and hence democracy, now also the objective of the World Bank, beside the traditional goal of development?

The bank’s core duty remains in development, in job creation, social safety nets and macroeconomic growth supporting programs. But the latest World Development Report looked at fragile states or states in conflict, and found that institutions, citizen participation and social accountability are all important. They fall into what you call governance.

In the past, this was seen as political, but now we see this as an element of development. We stand ready in supporting programs related to institutional and capacity building for our members. In the Middle East, we are now introducing four high priority areas: creating jobs, providing targeted social safety nets, promoting inclusive growth, and building transparency governance and social accountability. We are doing this not only in Tunisia and Egypt. The bank has a very strong relationship with Morocco, Jordan and the West Bank/Gaza.

How much of an impact would the decline of the Japanese economy, following the tsunami and the nuclear disaster, have on the rest of the East Asian economy?

It is still too early to make an accurate projection. We are still projecting an 8 percent growth rate for East Asia in 2011 and for 2012. There is recognition of a downside, and that the soaring world prices of oil, as countries are heading away from nuclear, will shave between 0.2 to 0.4 percent from the early growth projection.

Japan has a strong presence in the Asia Pacific in both trade and investment, and the regional supply chain will therefore be affected. But intra-regional trade is only 25 percent of the region’s total so the impact will be limited. We will have a better idea of the impact on the rest of East Asia by the middle of the year. Another thing we have to watch is that because the cost of reconstruction in Japan is going to be very big, it will use resources for domestic uses, so there is the question of whether this is going to be at the cost of its investment in other countries.

In many of your recent speeches, you talked about the growing importance of middle-income countries in leading the global economic recovery. What are their limitations and how can they overcome this?

The strength of middle-income countries in East Asia and Latin America come from having strong and healthy balance sheets, a strong presence of the manufacturing sector operating in the frontier of technology and a growing middle class that is creating strong and robust domestic demand.

These countries, however, have problems they need to address if they want to become a sustainable engine of growth in the global economy. Many of these countries, especially in East Asia, are suffering after relying too much on their manufacturing sector, which consumes a lot of energy. Designing green, sustainable and environmentally friendly growth is a challenge. You cannot grow on the same pattern because it is unsustainable globally.

Moving from the reliance on the manufacturing sector toward more service-based sectors requires a massive adjustment in their domestic policies, and they will need to be supported by an educational and institutional capacity.

And then you come to the main weakness: The quality of public institutions such as law enforcement, property rights and the judicial sector. You cannot move into a society with a more service-based economy without this kind of strength in your soft infrastructure and institutional building.

The final limitation is the aging population and this is a problem for China, Japan and South Korea. Indonesia will face this problem in 10 years time.

As the composition of demography in these middle-income countries become older, more demands will be put on health services.

These are constraints that could handicap the middle-income countries in playing the role as the engine of growth in the global economy.

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