The World Bank said that Indonesia's economy could recover faster amid a longer global economic crisis, by spending on infrastructure, plus rapid institutional reforms, according to a paper here on June 25.
"Invest more in infrastructure, health, social protection and agriculture; but for spending to be effective, institutional reforms have to be accelerated," World Bank's country director for Indonesia Joachim von Amsberg quoted by the Jakarta Post as saying
The director said that recovery from the global financial crisis would get under way in the second half of this year, but economic activity could remain below full potential for several years, indicating possibly more prolonged economic distress.
"This crisis has been different as the financial crisis has led to a real sector recession. Clearly Indonesia is affected ... but is still pretty robust," he said at a forum at the Financial Club in Jakarta on June 24.
The bank predicted the Southeast Asia largest economy would grow only 3.5 percent in 2009, before recovering to 5 percent in 2010 and 6 percent in 2011.
The International Monetary Fund (IMF) has upgraded its more gloomy growth projection for Indonesia from 2.5 percent to between3 percent and 4 percent.
The Indonesian government was optimistic to reach up to 4.5 percent growth. One of the government's main weaknesses is lengthy and slow bureaucratic procedures, causing a slowdown in government expenditure, compared to state plans.
As of May, government spending only reached 27 percent of the targeted 2009 state budget figure for expenditure, despite the fact that the country needs a boost from government spending to back up private consumption, the economy's main driver, predicted to slow somewhat.
Continued reform of the public procurement system will "allow the government to spend better", said Joachim, suggesting the development of a reliable and efficient independent complaint handling mechanism for firms participating in public procurement bids.