Paul Wolfowitz Press Briefing: Indonesia

with 
Paul Wolfowitz
World Bank President
Jakarta, Indonesia
Wednesday, April 13, 2006

It's nice to be here. It's always a pleasure to come back to Indonesia. I think about it. I came here as ambassador exactly 20 years this month, and I left as ambassador, I think it was, exactly 17 years ago this month. And the changes in the 20 years have really been extraordinary. And one of the things that gives me particular pleasure as some of you know in the farewell speech that I gave 17 years ago, I talked about the fact that this society was ready for greater openness and needed greater openness and I think the response at the time from civil society demonstrated that I was right and the response from the government unfortunately demonstrated that the government wasn't ready for that kind of openness. So it was a long time in coming but it has definitely arrived.

This is an open society in a way that we only dreamed of 20 years ago. You as members of the press are part of that. It was a pretty lively press corps 20 years ago, but not able to publish half of what you knew. There are no restrictions on publishing now - that's a great thing. The government is elected by the people - that's a great thing. And the people, I think, have shown great maturity as voters, particularly in a new democracy, particularly in a poor country, and I've had real pleasure in this visit in meeting with President Yudhoyono and with an outstanding team of officials and with impressive members of parliament and some quite impressive governors. And I have a real feeling that representative government in this country is working - is bringing results for the people. It's a complicated process. It's a difficult process. It used to be all you had to do to get one person to decide and everything happened and unfortunately sometimes it happened wrong.

Now there's much, much more participation from the whole population and from civil society. My last visit here before this one was in January last year and that was sadly to visit Aceh to see what I could do to support the relief efforts up there and to witness the worst, I think, natural disaster anywhere in the world in the last 100 years. And as much as I thought I was prepared for what I was going to see in Aceh from news reports and television reports. The sheer scale of the disaster was incomprehensible until you actually saw it. And even when you actually saw it was really pretty hard to comprehend. One of the good things at the time was as large as the disaster was, so was the outpouring of support from all around the world. From governments; from multilateral institutions like the one I'm now head of, the World Bank Group; from NGOs and even from millions of private citizens. So there were a lot of resources made available for the relief and the reconstruction of Aceh, but the task of reconstruction was enormous and it remains enormous. What I'm very pleased about having spent a few days up there last week is that I think the pace of reconstruction has picked up - very significant housing development has taken place.  It is, I think, by the way, having a significant effect on the economy.  One had the feeling of a city that had come back to life.

But most of all, the survivors were coming back to life.  We visited one village where roughly 80 percent of the population had been killed by the tsunami and there were about 500 survivors, but they were busy rebuilding their own houses.  This was a project, I am proud to say, the World Bank was taking the lead on with the BRR and the Government of Indonesia - (that) instead of building housing for the villagers, (the idea was) to give them the money for them to build them themselves.  You could feel the spirit and the enthusiasm and the incredible hard work that were going into it, and the sense of optimism.  I must say it says a lot, I think, about the people of Aceh that people can come back to a village where 80 percent of their friends and relatives are dead and want to rebuild in the same place because that is their home, that is their village, and do it with this kind of community spirit that is extraordinary.  By the way, I am going to come back to this subject, to do it monitoring their own money and their own expenditures in a way that our best auditors say is absolutely sound and, as the accountants would say, without qualifications.

But the other thing about Aceh, (that is) as important-- and this is the extraordinarily good news that came out of that catastrophe -- is the peace process.  We visited a number of places in the highland areas that had been places of intense conflict just a year ago.  We visited Tiro, which is a village that once upon a time, I think, people would not have allowed the idea of foreign visitors going there, and it was as peaceful as you could imagine.  We sat in meetings with former GAM leaders and Indonesian Government officials and local villagers and had very, very open and civilized discussions about the challenges of rebuilding and reintegration.

These two challenges come together, civilized discussions about the challenges of rebuilding and reintegration, the peace process and the post-tsunami recovery.  I think Indonesia is moving on a good track on both of those, and success in one will support success in the other.  I guess it is fair to say that the converse is true also, that failure in one could cause failure in the other, so it is very important to keep up that progress.  But I am very pleasantly surprised by the degree of progress I have seen.

There are still some big challenges left, and we can talk about them if you want, but overall, it was a very encouraging story, especially compared to the catastrophe of a year ago.

We also spent some time in Eastern Indonesia in South Sulawesi meeting with people from all over the region.  It is our feeling at the World Bank and among the donor community that this is a real time of opportunity to try to put some extra effort on the Eastern part of this country that, as I think you all know, has lagged behind some of the progress that has been made elsewhere.

Then we wrapped up this visit here in Jakarta.  We had an excellent meeting with President Yudhoyono, and I must say his attitude, his commitment, his determination to take this country to a higher level is, I felt, inspirational, and the team that he has assembled around him, the economic team, which includes two remarkable women, Sri Mulyani and Mari Pangestu, and also Minister Boediono, as the leader of it, is as good as I have seen here, and I have seen very good economic leadership here, so that was very encouraging.

We met with civil society groups, we met with some young leaders, business leaders, Muslim leaders.  What comes through is a country that has got a lot of strength at different levels in different ways throughout the society.  It is no longer dependent on the will of one individual.  The Parliament is an active player in policy.  I would put myself in the shoes of an Indonesia Government official and say it is a more complicated picture, but I think it is a much healthier picture.

I think the biggest challenge facing the country today is how to take the growth rate up from roughly 5 percent or so to where I think it could be which is I think it could be comparable to the more successful countries in this region, which is to say, 7 percent or even higher.  We are just guessing here, but we are not guessing when we say that perhaps the biggest obstacle to reaching that higher level is improving the investment climate in Indonesia.  The most important thing, I think, for improving the investment climate is this effort to combat corruption, to develop Government institutions that deliver services to the people and in a transparent and accountable way.

Again, that is something that is just a dramatic change from 20 years ago when you really could not talk about the word in public.  There was a euphemism I think some of you know, "the high-cost economy."  But you do not deal with a problem like this one by using euphemisms.  You have to say what the problem is and then you can deal with it and correct it, and I think there is a lot of corrective action underway.

In my view, there is no such thing as a bad visit to Indonesia, but for me, this was an exceptionally good one and a very happy marker for me of a lot of progress in the 20 years since I arrived as Ambassador.

I would be happy to take some questions.

[Question inaudible]

MR. WOLFOWITZ:  I should emphasize, it is nice to be back as the President of the World Bank Group and able to represent the whole donor community because Indonesia's success is really important for the whole region and important for the whole world, and of course, important for 220 million Indonesians, especially the 11 million that are still living in extreme poverty.  That is the mission of the World Bank.  We have a lot of excellent partners in that effort here, and most of all, the Indonesian Government and the Indonesian people, so we consider it a privilege to be able to play a role in this effort.

And it was a potential turning point, and to use an English expression, to give the devil his due, President Suharto and his economic team had done a lot of good for this country and there was some pretty dramatic progress registered in his first 20 years.  What was beginning to emerge more and more in the late 1980s was that as his family got older and more active in what you could loosely call business activity here in Indonesia, both the quantity and quality of corruption grew worse, and it grew much worse in the 1990s.  I think one of the worst things is when you have an environment that is so corrupt that people are afraid to start businesses, or if they have businesses they are afraid to have them be too conspicuously successful because the next thing that will happen is some special law will be passed and they will be forced to make a fire sale to some newly created monopoly. That was the kind of thing that was going on and that creates a fundamental distortion of the economy, and I think a fundamental weakness in the banking system which was a big part of the collapse in 1998.

One thing I did observe is the U.S. had some very, very strict rules about anyone caught involved in corruption in U.S. AID programs, and they were relatively modest, but I think they were largely left alone for that reason because that was the way it appeared at the time.

With respect to your other question, I am going to answer it in terms of what the World Bank can do, and that is to help Iraq as we are helping Afghanistan, helping Liberia, helping a number of other post-conflict countries, to establish new functioning institutions after the devastation that comes from years of war or years of repression, in the case of Iraq.  I think it is worth pointing out that even in these countries that are rebuilding essentially from scratch, or maybe particularly in those countries, the problem of corruption comes out front and center.

Liberia is the case of a country that was pretty much destroyed by civil war, and it has a new opportunity because there was an election.  The women who won the election, the first woman President in Africa, democratically elected, I am proud to say, Ellen Johnson-Sirleaf is in some respects a graduate of the World Bank.  She worked at the World Bank for a while.  Her new Finance Minister worked at the World Bank until just a month or two ago when she resigned her very nice job in Washington to go and be the Finance Minister of one of the most broken countries in the world.  One of the first things she did was to say we have to clean up corruption in the Finance Ministry.

This is, unfortunately, a problem everywhere.  It is a problem in the richest countries in the world.  I think right now it is kind of like a big, heavy anchor on Indonesia's growth and it slows down what could be, I think, a much faster-growing economy.  I am very pleased here that unlike 20 years ago, you can talk about the subject, you have a Government that is doing something about the subject, and I think you are making progress.

MS. CHU:  Mr. Wolfowitz, good morning.  A very good morning to you.  My name is Amy Chu from New Straits Times of Kuala Lumpur.  I have two questions for you, one to do with corruption, and the other one to do with democracy.

Firstly, in terms of corruption, you have said that the World Bank intends to make more investment for judicial reform.  Would that judicial reform include making funds available to ensure that judges are better paid, prosecutors, also--a double-edged sword where it can unleash good forces as also dire forces.  And as you have seen, democracy in Indonesia, it is very free now in Indonesia, and at the same time there are also a lot of fringe groups, but somewhat militant and radical to operate and flourish.  So what would you have to say as the former Ambassador to Indonesia to Indonesia on how to manage this democracy whereby that freedom is used for the greater good of the entire nation and not just for the narrow interests of fringe groups?  Thank you.

MR. WOLFOWITZ:  On the first question, I think what I said about our programs is that they all include an important element of governance.  I want to separate that a little bit from judicial reform because it takes many different forms, and what we are trying to make sure is when we have a loan or grant for education or for health or for infrastructure, that some portion of that goes to making sure that there is transparency and accountability in the expenditures and that there are good mechanisms for trying to prevent the kind of corruption and other sorts of leakage that took place in the past.

When it comes to judicial reform, I think everything you said in your question is part of what ought to be an important agenda here.  We do not have a plan for it, it would have to be an Indonesian plan, but I think the more it is possible to provide honesty and certainty in the judicial system, the country would benefit enormously.  It would benefit if investors felt that contract disputes and other kinds of commercial issues were resolved in a clean, fair, and honest way, and they do not feel that way now.

And it would help on a much larger scale if ordinary people felt that there was equal justice under the law whether you were rich and powerful or poor and weak.  So I think for the health of the society it is important both to at the sort of more narrow end make sure that the kind of legal environment that will encourage raising investment levels in this country that will in turn create jobs and fight poverty, that that has to be addressed, but I think also the broader question of the whole legal system is high on the agenda.

We do not have a World Bank plan for doing that, it is an ambitious objective, but I have said that if there are ideas that the Government has that we might help support. I do think it is a very high priority.  Just keep the pressure on - to keep people down, keep them repressed, to me it is a lot like trying to hold the lid on them. In fact, as I remember in my farewell call with President Suharto, I pointed out to him that he was fond of the phrase dynamic [inaudible] standing still, that's what the Poles used to call the stability of the graveyard. You maintain stability by moving forward, and that means change about either democratic institutions or free institutions, and so you have to tolerate law-breakers, you have to tolerate murderers and the problem of extremists.  I spend a lot of time-[inaudible] when you had a bombing here, people who do not know this country very well say there are 200 million Muslims, that is why there is a bombing.

QUESTION:  [Off mike] apologized for being part of corruption in the past here in Indonesia, and what about going forward?

MR. WOLFOWITZ:  Going forward is what is important, and I think this country is going forward.  If you look at the total debt burden, this country has come down from, if I remember the numbers, I might turn to staff for help here, it has come down from roughly 100 percent of GDP within just a few years to about 50 percent now.  This country is not a broken country like so many in Africa or elsewhere that are in this category of highly indebted poor countries that have no prospect of making a way out.

I think the important thing in looking at the past to me that we really can do something about, number one, we can learn the lessons of the past, and we have to.  I think maybe because the experience here was a searing experience, and I can tell you it was a searing experience for my institution as well, that people have spent a lot of time trying to understand those lessons and trying to develop mechanisms to prevent those same mistakes in the future.

I think this office was one of the first to actually publish a complete investigation report on a corrupt project that we investigated.  I think it was one of the first to publish the list of some 100 individuals and companies that we have sanctioned in this country as a result of investigations we have conducted.  We have beefed up not only on, if you want to call it, the punishment and identification of wrong-doers, we have also beefed up mechanisms for better accounting and better transparency.  The Kalopadin Development Program which has much more than just the--it is, but I think there is a different attitude in the world today about money laundering and about banking secrecy. I think that there is an opportunity to make it harder for the corruptors to at least take large amounts of money out, and if it is harder to do it. I think then there are lessons in it [inaudible] I think in terms of the future, though, and that is the really key thing, is to make sure that money is--we make available now is spent well and that we support people in this country and in the Government and outside the Government who are working to build mechanisms to battle this disease.

QUESTION:  My name is [off mike] I do agree that looking forward is more important, but will you help the Minister to recoup the money that was stolen by the former President here [inaudible] in Nigeria?

MR. WOLFOWITZ:  Again, our role in the Nigerian thing was limited to playing something of a facilitating role in getting this agreement between Nigeria and Switzerland.  It was not our money that was involved, and we are not the people who traced it to Switzerland.  I think I have learned a whole new term which is forensic auditors which is the auditors who go in and find the crimes in a bookkeeping system, and I believe that is how the Nigerian theft was identified.  If there is anything we as an institution can do to facilitate that sort of thing, I would be happy to look at it, but I think just because we are the World Bank does not mean that we are the world's banker.  It is a very big, complicated system these days, and I think it will take a pretty broad-based effort to address that kind of thing.

QUESTION:  [Off mike] from the Straits Times Singapore.  I just wanted to ask you, you said earlier about improving the investment climate and in some part this effort is to reform some of the policies, and one of the problems so far has been political actors playing a role in imposing obstacles to getting these policies forward.  For example, there is this bill on the Labor that is getting a lot of resistance from the Labor Movement and also some political parties.  Could I just ask your assessment on how this political factor will play a role, I guess posing as an obstacle to some of the Government's efforts to reform the economy?

MR. WOLFOWITZ:  I think it is very important to emphasize that an awful lot of the important decisions in this country we may not even have an opinion on, and in any case, it is Indonesians who have to make these decisions.  So we do not have an opinion on everything.  I think what is striking to me is that a lot of people are still adjusting to the fact that it is not the old days, it is not one person whose opinion counted, it is the whole society's opinion counts.

We paid a visit to Parliament this morning.  When I came here as Ambassador 20 years ago, I learned that there had not been a single visit by an American congressional delegation to the Indonesian Parliament at least in anyone's memory because no one took the Parliament seriously.  The Parliament is a key actor now and it is a very important actor, and that is a place where I think that as the World Bank we can help and we are helping with a couple million dollars of technical assistance to help strengthen the capacity of the Parliament here to play its effective role.

But when it comes to how you resolve a very, very difficult issue like this question of labor law, it has to be done by Indonesians.

QUESTION:  [Off mike] what would you say is the most striking difference between Indonesia 20 years ago and nowadays in Indonesia?

MR. WOLFOWITZ:  Many.  The most striking difference is the political change, there is just no question about it.  It is dramatic.  You can see it almost everywhere.  And it is not without its problems.  I think a couple of the earlier questions have said that it makes for a more complicated situation.  But it is a very free country where people express opinions very freely, where Government officials have to constantly talk about what the Parliament is going to approve or not approve, what the public reaction is going to be to things.

The Presidents are very different, and, with all due respect, I think it is a very refreshing difference, and I think President Yudhoyono has shown a really deep sense of what it is to lead a democratic country, and to try to bring the public along with him in what is a pretty ambitious effort at reform.

Another thing that is interesting is I think, and this is a sort of feeling, is that there is a pretty dramatic difference in the younger generation, that the Indonesians I have met in their twenties and early thirties have a level of sophistication and knowledge about a whole range of problems, both Indonesian and outside of Indonesia, that was pretty rare to find 20 years ago.  And this is not only among those who have been educated abroad, a lot more of them have been educated abroad, but I think it is also true among Indonesians who have gotten their education here, and that is another reason, I think, to expect a lot more change in this country.

A couple of things that have not changed, one thing that has been true in good times and bad times, is there is a resilience, cheerfulness and hospitality about Indonesians which I suppose is one of the reasons why I love coming back here.

The other thing which I think is extremely important and it is one of the reasons why I think this country is even more important than its size, which is substantial, it is not just that this is 220 million people, but it is 220 million that by and large, and there are exceptions, continue to practice a remarkable degree of religious tolerance, of tolerance of ethnic difference, and of maintaining, as the National Motto says, unity and diversity.  And I think even drawing strength out of that diversity so that there is a very strong sense of being Indonesian in part because whatever Indonesian you talk to has deep roots that go back generations and generations in some part of this country.  And I admit to being a little biased, but I think an objective observer would say this country has made some great strides in the last 20 years, including economically.  I have to mention that.  After the collapse of 1998, I was not optimistic that the economy would recover this quickly, and am rather pleased to see that per capita income has doubled what it as 20 years ago, that infant mortality is down, poverty is down by half.  I would like to see it go much further, but that is real progress.

One thing I did observe is the U.S. had some very, very strict rules about anyone caught involved in corruption in U.S. aid programs, and they were relatively modest, but I think they were largely left alone for that reason because that it was the way it appeared at the time.

           
With respect to your other question, I am going to answer it in terms of what the World Bank can do, and that is to help Iraq as we are helping Afghanistan, helping Liberia, helping a number of other post-conflict countries, to establish new functioning institutions after the devastation that comes from years of war or years of repression, in the case of Iraq.   I think it is worth pointing out that even in these countries that are rebuilding essentially from scratch, or maybe particularly in those countries, the problem of corruption comes out front and center.

Liberia is the case of a country that was pretty much destroyed by civil war, and it has a new opportunity because there was an election.   The women who won the election, the first woman President in Africa, democratically elected, I am proud to say Ellen Johnson-Sirleaf is in some respects a graduate of the World Bank.  She worked at the World Bank for a while.  Her new Finance Minister worked at the World Bank until just a month or two ago when she resigned her very nice job in Washington to go and be the Finance Minister of one of the most broken countries in the world.  One of the first things she did was to say we have to clean up corruption in the Finance Ministry.

          
This is, unfortunately, a problem everywhere.   It is a problem in the richest countries in the world.  I think right now it is kind of like a big, heavy anchor on Indonesia's growth and it slows down what could be, I think, a much faster-growing economy.  I am very pleased here that unlike 20 years ago, you can talk about the subject, you have a Government that is doing something about the subject, and I think you are making progress.