On Tuesday a Wall Street Journal editorial writer took it upon himself to introduce me to the paper’s readers. As character assassinations go, this one was relatively mild. No accusations of nepotism, sexual impropriety or gross financial mismanagement, not really up to current Washington standards. The writer did say that I am soft on corruption, and have been consistently so. He suggests that it is my forgiving attitude toward corruption that motivated me to join 40 other former World Bank senior officials in signing a letter to the Financial Times calling for Paul Wolfowitz to resign as president.This is a not an argument I take seriously, nor will I engage on that front, but I am unwilling to let the offhand and inaccurate comments on Indonesia go unchallenged.My last run-in with the WSJ editorial staff was in 1998 in Jakarta at the height of the East Asian financial crisis when I was asked to explain why the World Bank had stayed engaged in Indonesia for some 30 years despite continued and serious corruption in the country.My answer then as now is that the World Bank played an important, positive role in a highly complex environment that produced not just a good, but an outstanding record of economic development during the first 30 years of the Suharto era, a record that put Indonesia first among all large developing countries, including China. I argued that this success showed that it was right for the World Bank to stay engaged and to find ways to help the people of Indonesia, rather than taking the moral high road and simply walking away.The WSJ editorial writre asks, “which people” the World Bank helped, implying that it was Suharto’s children and cronies who were the main beneficiaries of World Bank loans and of Indonesia’s success. But the facts paint a very different picture. In 1966, when Suharto took power, Indonesia’s per capita income was about $50 and 7 out of 10 Indonesians lived in poverty. By 1996, per capital incomes were around $1000 and only 1 in 10 Indonesians lived in poverty.During this remarkable 30 year period, Indonesia scored at the top or near the top of almost every measure of development progress—notwithstanding some sweetheart deals for members of the Suharto family. Fueled by average annual growth above 7%, real wages rose faster than overall economic growth, rural Indonesia prospered, exports boomed, foreign direct investment poured in. Yes, Suharto’s children got rich during his reign, but millions, actually hundreds of millions, of ordinary Indonesians were able to greatly improve their lives. Moreover, Indonesia’s record on poverty reduction proved resilient even through the crisis that sparked the WSJ editorial staff’s passing interest in the country, as documented recently in a CGD working paper by Peter Timmer, Pathways Out of Poverty During an Economic Crisis: An Empirical Assessment of Rural Indonesia Corruption indeed can be a serious problem. And sometimes it is so crippling that the World Bank—and bilateral donors such as the U.S.—should indeed walk away. But Indonesia’s experience reminds us that the world is a complex place and that development can be a messy business. World Bank decisions about when and how to engage in developing countries require careful consideration rather than high-sounding rhetoric and hectoring crusades.I have not been shy in sharing my views on this issue, explaining them among other venues in a speech I gave at the World Bank in December 2006, soon after I joined CGD. The speech, Development and Corruption: An Impolitic View and a brief Q&A in which I summarize the key ideas are both available on the CGD website.
