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Given Indonesia’s on again, off again and now on again engagement with international fi nancial institutions some 15 years after the Asian Financial Crisis, there is a little wonder that the World Bank Group and International Monetary Fund (IMF) annual meetings taking place this week in Tokyo are continuing to attract the attention of public, private and not-for-profi t stakeholders in Jakarta and elsewhere around the country.
Less than fi ve months ago, the World Bank announced it was ready to provide Indonesia with a US$2 billion loan as a contingency against a potential debt crisis and “possible future shocks and volatility”. This was followed just a few weeks ago by the Asian Development Bank (ADB) board of directors’ approving a $300 million loan to support the further development and integration of the nation’s fi nancial markets.
According to the ADB, that most recent loan to Indonesia is intended to help boost investor confi dence, increase the availability of nonbank fi nancing and demand for capital market products, and grow Islamiccompliant insurance products. This effort in turn should support Indonesia’s ability to tap domestic savings as a source of funds for needed infrastructure and social services investments. All are critical needs and time will tell if the latest World Bank and ADB support to Indonesia will be effective.
At the end of the day, however, the some 20,000 participants gathering in Tokyo for the annual Bank and Fund meetings — including senior delegations from Jakarta and other Southeast Asian capitals — might well ponder a simple truth.
That is, diplomatic speak aside, policymakers know at some level, the prescription for future growth is simple and straightforward — improve the bureaucracy, regulate fairly, intervene rarely, stamp out corruption and reduce sectarianism. Capital and investment will follow.
That prescription is also neither “Eastern” nor “Western”, though many an Asian leader remains happy to point out what the major international fi nancial institutions — whether under US, European or Japanese leadership — continue to do right, and do wrong.
From Seoul to Jakarta, negative perceptions still linger in particular toward the IMF due to its policy prescriptions during the Asian fi - nancial crisis of 15 years ago. The governments of the large emerging “BRICS” economies of Brazil, Russia, India, China and South Africa also have put forth their own proposal for a “BRICS development bank”. A complement, not a rival to the World Bank, they pointedly note.
Yet, the economies of the BRICS have also slowed, held back by what I have termed a lower-cased case of the “brics” — namely bureaucracy, regulation, interventionism, corruption and increasingly sectarianism. Ironically, the challenge of these “brics” writ small-scale may well in the long run stymie the sustainable rise of the BRICS and other large economies.
In Indonesia and elsewhere, everyday people, with everyday problems, should ask their leaders and the fi nancial gurus gathering in Tokyo fi ve simple questions: Is our government bureaucracy hindering or fostering economic growth? Whether in Asia and the Pacifi c, or in the Americas, Europe or Africa, a real fi ght against bureaucracy is less about new organization charts, and more about assessing what works and what doesn’t. And then getting rid of the latter.
It’s not just the size, but also the service quality, of the bureaucracy that matters. How are regulations impacting job creation? Businesses and investors are often challenged by not just too many or too few regulations, but more critically, by unequally applied and unevenly enforced regulations. Clearly, not all regulation is bad.
Safeguards are essential — and indeed, the new World Bank president should commit publicly to no weakening of existing environmental and social safeguards — but policymakers must ask if near-term job creation and growth are losing out to red tape and regulatory excess.
When is government intervention appropriate?
Governments in Asia, including here in Indonesia, have long been both praised and criticized for seeking to pick winners and losers, often distorting the market in favor of national players. Too often, however, government interventions and ineffi ciency can go together. Policymakers need to ensure such interventions, if any, are limited and a matter of last resort.
What more can be done to root out corruption?
Corruption and cronyism frequently go hand-in-hand, and Indonesia’s long-suffering citizens are perhaps best positioned to judge whether progress is being made here in the fi ght to strengthen judicial systems, improve rule of law, and increase transparency.
Allegations of favoritism or leniency must be investigated, institutions strengthened, and individuals held accountable if people from all walks of life are to regain confi - dence in their leaders and systems of governance.
What level, if any, of sectarianism is appropriate?
Understandably, once disenfranchised or marginalized minorities are seeking to right past wrongs and are speaking up with their own claims to a nation’s wealth and calls for greater respect and recognition. As dictators have fallen, however, tensions and confl ict have risen.
Whether in Egypt or the once pariah state of Myanmar, also known as Burma, or elsewhere, politicians must put their own nation’s interests fi rst and foremost, rather than those of their own sect, party or denomination.
At the heart of these fi ve simple questions is the notion that leaders are needed to tear down new walls built of bureaucracy, regulation, interventionism, corruption and sectarianism. These “brics” are blocking the way and hindering the steps needed for sustained, private sectorled growth.
Putting an end to capital misallocations built of the new “brics” also would go a long way toward spurring business innovation, increasing the fl ow of investment dollars and creating the private sector jobs that are the true building blocks of economic growth.
Regardless of who runs the World Bank and the IMF, the message to the world’s bankers from the people most in need in Indonesia and the rest of Asia is likely a simple one: It is time to get back to the basics of moving the global economy forward.
The writer, the US Ambassador to the Asian Development Bank under Presidents Barack Obama and George W. Bush (2007-2010), is a senior fellow and executive-inresidence with the Asian Institute of Technology, and a managing director with RiverPeak Group, LLC. The opinions expressed are his own.