World Bank urges Indonesia to spend ‘windfall’ on reducing poverty

Cutting fuel subsidies in 2005, declining interest payments on its debt and increasing revenues have handed Indonesia the largest increase in fiscal resources for development since the oil boom of the mid-1970s, it said in a review of Indonesia’s public expenditure.

Indonesia should now increase public spending, particularly in infrastructure, education and health to keep its economy competitive in the long term.

It should raise infrastructure spending by two percentage points of gross domestic product to 5.4 percent, or an additional six billion dollars a year, World Bank country director Andrew Steer told reporters.

‘It would be very nice if it would be higher than that to catch up,’ after a ‘lost decade’ following the 1997-1998 Asian financial crisis, he said.

Indonesia has lowered its debt to GDP from almost 100 percent to below 40 percent.

‘Right now the issue is not the shortage of money or financing. Money will come when there are the right designs and the right policies,’ he said.

Water and electricity supply were two of the areas most in need of change, he said.

Only 40 percent of Indonesians have access to piped water and a third have no access to electricity.

The universal electricity tariff meant state power firm PLN had no incentive to expand the network because it would lose money on every new connection, he said.

And local authorities now had the resources to reform water supply but had done very little.

‘There’s nothing to stop rapid progress except political will,’ he said.

But Steer said some of the additional money was already being well spent, particularly on education.

‘They now need to figure out how to also spend money well in infrastructure,’ he said.

Indonesia is also scaling up an anti-poverty programme to reach all 75,000 villages in the next three years.

A second scheme based on successful programmes in Mexico and Brazil will also give assistance to the poor but on conditions such as they put their children in school and provide proper nutrition, he said.

‘In terms of helping the poor, they’ve got two programmes that will become world class...,’ Steer said.

‘It will enable the inter-generational transmission of poverty to be broken, at least for some poor people, because at the moment the great tragedy worldwide is that if you’re born into a poor family, you’re going to be poor, so the trick is to break that transmission mechanism.’

Despite the progress made in recovering from the Asian financial crisis which plunged millions back into poverty, nearly 50 percent of the population still lives on less than two dollars per day.