For Greece’s embattled politicians, who must struggle to convince the public to swallow yet more bitter austerity measures, the intense pressure from rapacious lenders and unforgiving bond markets must seem unprecedented; but Sri Mulyani Indrawati, the most senior woman at the World Bank, has seen it all before.
As Indonesian finance minister from 2005 to 2010, and before that as an economic adviser to the Wahid regime that ran Indonesia from 1999 to 2001, she watched her country — one of the most populous in the world — struggle to emerge from decades of dictatorship and economic repression.
Indonesia was swept up in the last major financial crisis, in the late 1990s, when international markets fell out of love with the “Asian Tiger” economies that they had bankrolled for over a decade.
The resulting turmoil in Indonesia resulted in the overthrow of the notorious dictator former Indonesian president Suharto, who had borrowed heavily from the international community — including the World Bank — to fund his regime.
The strict conditions placed on a rescue package offered to Indonesia by the IMF were widely seen as making the situation worse. However, after more than a decade of reform and reconstruction, Indonesia is well on the road to recovery — it chalked up growth of more than 6 percent last year.
Mulyani says that Indonesia’s situation in the 1990s was actually much harder than that of Greece today, whose neighbors are rallying to its aid and where private lenders are expected to agree to a writedown, or “haircut,” on their Greek bond holdings.
“They are a little bit lucky, if I can say that, because they actually secured debt reduction through the haircut; in Indonesia, we didn’t have that luxury,” Mulyani said.
Asked whether she has sympathy with Greece’s fears about surrendering control over its domestic policies, her response is similarly unflinching.
“If you are allowing yourself to grow your debt to 200 percent [of GDP], then at some point the ones who are lending you the money are going to have a say about how you manage things,” she said.
In 2005, she was declared the world’s best finance minister by Euromoney magazine, and in 2008, the world’s 23rd most powerful woman by Forbes.
Today, she is in charge of operations in Asia and Africa, Europe, Latin America and the Middle East for the World Bank. As one of the bank’s three managing directors under World Bank President Robert Zoellick, Mulyani is the embodiment of the growing role that middle-income countries — such as Indonesia, but also China, India and Brazil — are playing in the international community, including in delivering overseas aid.
She says there are lessons for every country from the experience of these emerging economies. Even in the world’s richest countries, it has become increasingly clear that generating GDP growth alone is not enough.
“When you talk about inequality and disparity — here, in many advanced countries the bitterness is growing,” she said, adding that politicians must focus on “making sure that not only a few people can enjoy so excessively while the majority feel they have to work so hard.”
She also defends the bank’s continuing involvement in China, India and other middle-income countries against the skepticism of some critics — including British Conservatives who have questioned the need for aid to India.
“In middle-income countries, inequality becomes a problem because you can see there is a layer of people who are doing well, while the poor are still stuck there. We have 300 million poor in India,” she said.
These days, she says, the bank often provides just 10 percent of the costs of a program, with the recipient government paying the rest; her officials offer other support and advice, and encourage one country to learn from another. She cites Brazil’s popular Bolsa Familia scheme, which fights poverty by offering cash supplements to families whose children attend school regularly.
Mulyani concedes that traditional lenders such as the World Bank are at risk of being outflanked by fast-moving new players such as China, which is less fastidious about human rights abuses or political corruption. China’s increasing influence across the developing world, including in scores of African nations, is bringing a dramatic and much-needed boost to inward investment, but carries with it risks of political interference and allegations of a new era of colonialism.
If the West is too slow to react, she said, “there will be a new player who is very pragmatic, who will close their eyes to all these principles and will just give money.”
She also has tough words for international aid agencies, which she had first-hand experience of dealing with when she oversaw the rebuilding of Aceh after a tsunami in 2004.
“Everyone with all those good intentions came to help Indonesia rebuild from the tsunami, but the coordination problem was very big because they came with their own way of doing business; they came with the inflexibility of their own governance,” she said.
Donor coordination is becoming a buzzword among non-governmental organizations, and one of Mulyani’s jobs is to try and get the agencies, together with philanthropic bodies such as the Gates Foundation and rising powers such as China, to cooperate.
The bank and its sister organization, the IMF, have been widely criticized for working with the authoritarian regimes that were overthrown by the protesters in the Arab spring.
Mulyani says the bank has no choice but to work with whatever government is in place in its client states, but she does concede that the revolutions that swept through the Middle East last year have prompted a new approach.
“The Arab Spring is actually giving us the underlying engagement with the country, which in the past has only gone through the government. Now, reaching out and communicating with the people is becoming very important and technology can facilitate that. In short, the way we engage with these countries has changed,” she said.
She says there will be an urgent need to satisfy the aspirations of the protesters who took to the streets in their millions, not just for more democratic, transparent government, but for a more equitable economy:
“They want to have a job and jobs can only be created when you manage the economy right: You have to restore growth and you have to make sure it’s inclusive, you have to protect the poor,” she said.
She says her experience in Indonesia, as it battled to emerge from political revolution and a painful sovereign debt crisis, suggests that the path to normality for the Arab nations will be a long one.
“This is not going to be one smooth, linear process. Some setbacks will happen,” she said. “I have my own experience in Indonesia, of course. Sometimes in these transition situations, the new governments are still clumsy and awkward in responding to this new environment in which they operate. The only thing in their DNA is the old regime.”
Mulyani refuses to be drawn on the dying days of another regime, however — that of Zoellick, whose term ends this summer and who is unlikely to be reappointed by US President Barack Obama, whom Zoellick said had failed to exercise leadership in global trade talks.
In theory, the succession at the bank is meant to involve an open nominations process, overseen by all its shareholders, but in practice, the US, still the dominant power at the Washington-based lender, is unlikely to release its stranglehold over the job.
Mulyani said all the bank’s shareholders “need to be fully aware of the mission of this institution. It’s not just: ‘It’s my turn.’ That’s what’s incredibly important.”
However, on the question of whether it is time for a non-American to get the job, she just breaks into a steely smile.
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