In the one hundred days since assumingoffice, the new administration of Megawati Soekarnoputri hasmade little progress on structural and governance reforms.The events of September 11 and the slowdown in the globaleconomy worsened the investment climate in Indonesia, addingto the government's already formidable array ofchallenges. Indonesia's recovery has lagged behind itsneighbors and over half its population vulnerable topoverty, more than any other crisis country. Moreover, itsfragile banking and corporate sectors, and the precariousstate of its government finances, make the country highlyvulnerable to risks--with immediate implications for fiscalsustainability. Donors need to be realistic about what isfeasible, given strong vested interests, severeinstitutional weaknesses, the uncertainties arising fromdecentralization, and a turbulent transition to democracy.Progress is most needed in the key areas of structuralreforms, good governance, and empowering and investing inthe poor. Together with fiscal sustainability, they areconsistent with the premise that stability, growth, andeffective government are the key ingredients forlong-lasting and sustainable poverty reduction.
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