H.E. Dr. Makarim
It is a distinct pleasure and honour for me to participate in this unique and first-ever international conference on financing for development.
Allow me at the outset to congratulate you Mr. President and, through you, all the members of the Bureau on your respective elections to preside over this historic conference.
The conference, as I see it, offers a golden opportunity to tackle the formidable challenges presented by the rapid pace of globalization and interdependence, to rethink and reshape our world and particularly to unlock the potential of development by revitalizing its financing.
We meet today against the backdrop of a global economy caught in the grip of a prolonged economic slowdown with uncertain prospects for the near future. Poverty is still rampant with over half the world subsisting under $2 per day, underdevelopment is widespread and a widening gap between the haves and have-nots threatens to undermine progress and stability. Such developments demonstrate the vulnerability and fragility of the global economy in the world we share, forcing us to realign our thinking on the issue of peace, security and development.
In seeking to redress these trends and to bolster development, the international community has undertaken many initiatives and commitments particularly through the outcomes of the major UN Conferences including the Millennium Summit. However, in all cases the lack of adequate financial resources proved to be a persistent constraint on the efforts of the developing countries. It thwarted their effective integration into the global economy and recurring financial crises disrupted and crippled their economies and social fabric. Clearly, central to these problems was the failure of the international financial system to meet their development needs from the perspective of financing for development.
The central challenge therefore facing all of us at this International Conference is how to generate adequate finance for development at both the domestic and international levels while averting financial crises in this era of globalization. In addressing that challenge, I see the Monterrey Consensus document as an excellent basis for our deliberations by helping to chart our course towards viable solutions and to forge a genuine partnership to effectively put development at the center of global financial reforms.
Domestic financial resources represent the primary source of financial resources for development in most countries. Their mobilization requires the strengthening of public and private sources of financing. To achieve this, conducive internal conditions must pertain. Those include such initiatives as the promotion of sound macroeconomic policies and governance and it is the national government that has the primary responsibility for ensuring this.
However, in this era of globalization domestic efforts alone cannot be successful. They require a conducive external environment. With the rapid liberalization of finance and trade together with the end of the cold war, national economies have been increasingly dominated by global financial markets and multinational corporations. But the truth is that such financial markets grew at such a pace and in such strength that they outpaced and outgrew the institutions that were designed to contain them. From this emerged distortions and imbalances that now abound.
From our experience in mobilizing
finances for development in Indonesia, we have clearly seen the two faces
of globalization in action. On the one hand we have reaped the tremendous
rewards of the opportunities it certainly affords. On the other hand we
became a victim of its enormous risks.
The challenges Indonesia had to meet in its efforts to recover are, I believe, instructive. In our efforts to rebuild and strengthen our economy, social and political institutions and procedures, we have faced the formidable task of addressing multiple crises in the economic, social and political fields all at the same time.
The task that we face is more difficult in this period of time. The economic crises in Indonesia opened the doors to a systemic transformation. Such transition towards a multiparty democracy and a rules based market economy was to involve and enterprise of national regeneration in which no aspect of political, social and economic life was to be left unchanged. A major challenge for the Monterrey Conference is how to define and to deal with development finance challenges within the context of historic, systemic transitions.
The transmission of severe economic shock across national boundaries will no doubt unleash such large scale transformations in the future. In this regard, we urge this conference to recognize that these situation are fundamentally different to those where countries are trying to overcome the more mainstream obstacles of long term economic development.
To effectively address these combined difficulties required designing the right mix of policies together that would successfully move the economy forward without sparking further unrest. One of the first steps taken by our country was to embark on a transition process to a more democratic form of government which, though still at a fragile state, has successfully undergone a number of peaceful transitions. In the reform process we have undertaken a series of measures, with international support including advice from the IMF, which committed our economy to a rigorous programme of national recovery.
Since our country's political transition last July the new government has sought to impart new momentum to our reform process. This has involved implementing a comprehensive strategy to reactivate the economy, restore investors' confidence and reduce poverty. Among these measures was the adoption of sound macroeconomic policies which were specifically designed to achieve high rates of economic growth and employment, price stability and balanced external accounts.
Let me add a further point on Indonesia's recovery programme, that is the centrality of poverty eradication. We are committed to achieving the goals of the Millennium summit, particularly the reduction of poverty levels by half by the year 2015. Programmes merely designed to boost economic growth alone have not been proven successful. We have therefore sought to expand beyond economic policies to embrace social and sustainable dimensions of development. This should help ensure the sustainable financing of education, human resources development, capacity building, health, nutrition and social security. We are paying special attention to the care of children, the promotion of gender sensitivity, the full inclusion of the rural sector and all disadvantaged communities into the national economy.
While each country is primarily responsible for its own development, it is also recognized that national economies are increasingly interwoven in a broad web of international economic activities. Thus, it is obvious that domestic efforts must be complemented by a conducive and supportive international framework.
For example, in the field of financial flows, such flows have increased at exponential rates reaching billions of dollars on a daily basis worldwide. In seeking to attract a share of such flows we recognize the importance of engaging the relevant international and regional institutions. It is crucial that they increase their support for private foreign investment particularly in priority areas such as export credits, co-financing and venture capital among others. For this reason, Indonesia has actively engaged a broad spectrum of stakeholders including the United Nations, the Breton Woods Institutions as well as many other relevant entities at the global regional and domestic levels including the private sector and civil society in the process.
It should be added in this regard that the efforts undertaken by business should not be solely addressed to economic growth. Rather, the social, gender and environmental implications of such undertakings should also be taken into account. Small entrepreneurs and small and medium-sized enterprises (SMEs) must be encouraged. These steps, we believe, have been pivotal in Indonesia's experience and its ongoing efforts of reform and recovery.
That is not to say that ODA should play any lesser role than that of private financial flows. For many developing countries especially those unable to attract adequate private flows for social and sustainable development purposes, ODA is considered indispensable. That means that substantial increases in ODA are necessary. They are also crucial for successfully fulfilling agreed international development goals, including those of the Millennium declaration. For this reason, 1 would like to compliment the donor countries who have already fulfilled their commitments in this regard and in some cases have exceeded the target of 0.7% GDP. At the same time I would call on those who have not done so to renew their commitments.
Another key issue that needs international action is international trade. As trade is considered as a vital engine for development, unilateral actions by the developed countries to improve access for products of and to provide technical and financial assistance for capacity building in the developing countries is urgently needed. In this context, the comprehensive Doha Declaration must be implemented in full.
The issue indebtedness of most developing countries is a compelling one in the context of financing for development. The magnitude of the problem is staggering. Debt burdens continue to constitute heavy drains on available financial resources, thereby jeopardizing development efforts. It undermines the efforts of many developing countries to combat poverty, promote their development goals and their pursuit of the Millennium goals.
From our perspective in Indonesia, debt burdens incurred by government and privates external debt payments have had a crippling impact on our ability to implement our development programme. Indonesian external debt of totaling about US$ 132 billion will exact a major human cost absorbing funds that could be used to foster economic growth and alleviate poverty. It is clear that Indonesia need to get a "breathing space" to obtain its budgetary condition in order. To overcome this problem, the Government has gone twice to the Paris Club, in 1998 and 2000 respectively. This was followed by a meeting with the London Club. In the case of private debt, the government has facilitated its restructuring by establishing the Indonesian Debt Restructuring Agency (INDRA) and the Jakarta Initiative Task Force (JITF). These are for non-bank private debts.
Nevertheless, international investors are likely to continue to perceive a relatively high level of risk in Indonesia. This is in part due to some unresolved external problems resulting in a number of debt burden indicators remaining high. Struggling with the debt servicing problem, Indonesia will again meet with the Paris Club in April this year and hopefully securing better terms and conditions. The success of the forthcoming Paris Club III negotiations and commitments to reform in the field of privatization are expected to improve investor confidence this year.
While debt reducing strategies play an important role in freeing up financial resources for development, what is equally important is the need to make such indebtedness sustainable. This would require putting in place preventative national and international measures including sound macroeconomic policies and public resource management. Technical assistance is important in this context in order to avoid the unsustainable accumulations of debt at both the private and public levels.
For these reasons and more, I greatly welcome the consideration by all relevant stakeholders of an international debt workout mechanism that would engage debtors and creditors together in the process of restructuring unsustainable debts in a timely and efficient manner. In addition, it is also important for the international community to seriously consider the creation of a specific debt relief mechanism to support developing countries in achieving sustainable development. These could include debt swaps for nature, debt swaps for equity and debt swaps for development, which Indonesia would wholeheartedly support.
In this context, we appreciate the enhanced HIPC Initiative by the BWIs. At the same time we call on the BWIs to further strengthen the enhanced Initiative so as to ensure its speedy, effective and full implementation. We believe the Initiative should be further improved by enhancing its flexibility with regard to the eligibility criteria. We believe that the Initiative should also be extended to other debt overburdened developing countries.
Over and above domestic and international efforts is the need to bolster the financial system itself. Failure to put finance for development on an assured and predictable basis and the sudden eruptions of financial crises points directly to systemic failure at the global level. Therefore, there is an urgent need to build and ensure good governance at the international level and effective transparency in the financial, monetary and trading systems if the mobilization of domestic and international financial flows are to be successful. This will require increased coherence of the international monetary, financial and trading systems.
While the ongoing reforms of the international financial architecture have been initiated in many areas, there is still a need for further strengthening if development is to be adequately supported and if the most vulnerable members of society are to be protected.
To achieve this, we need far greater transparency, improved governance and greater participation by the developing countries in the process. The multilateral financial institutions, particularly the IMF, are in a position to reinforce these measures. This can be done by strengthening both the underpinnings of international financial stability as well as their ability to identify and prevent potential financial crises. These ongoing efforts should be supported so as to achieve greater stability through well-designed surveillance and early warning systems.
In seeking to resolve the financial crisis in Indonesia, we welcomed the advice and support received particularly from the IMF on domestic macroeconomic reforms. In this regard, it must also be stressed that the needs of the poor and vulnerable with little or no safety nets should be fully taken into account. This should include an assessing and measures to counter the impact of the social costs of adjustment programmes on the poor. In this connection it is critically important that the consequences of the crisis are shared in a fair manner. While burden sharing should be promoted, it is also important that the dilemma of moral hazard should be minimized.
Before concluding let me just say that to achieve our objectives, I can see no alternative to engaging in genuine partnership and staying engaged. This is necessary for putting financing for development onto a more assured and predictable basis. It is also crucial that such partnerships require the participation of all relevant stakeholders in the negotiations and decisionmaking on all relevant issues and policies affecting their well-being. To achieve this, constructive dialogue based on mutual interests and shared responsibilities is imperative. Therefore I strongly believe that closer cooperation with the United Nations particularly the General Assembly and the ECOSOC is urgently needed.
Beyond the Consensus and the adopted agreements of this conference, little will be achieved in the short or long terms if we do not seriously commit ourselves to staying the course, to continuing the momentum generated here and to ensuring that the follow-up is faithfully carried out. To facilitate these purposes, we fully agree with the recommendation of the Consensus document that the current High-level Dialogue on Strengthening International Cooperation for Development through Partnership should be reconstituted to become the intergovernmental focal point for general followup to the conference and related issues.
In conclusion, Mr. President, let me add that I hope this international conference will achieve its declared objectives by bringing real hope to the poor and underdeveloped, that finance for development will be put on, a sustainable basis and that we will not falter in following through on our commitments.
Statements at the Conference