Indonesia's recovery 'far from assured': WB<\/p>\n
JAKARTA (JP): The World Bank warned Indonesia on Wednesday
\nthat its economic recovery was far from assured, despite
\nheartening progress in economic stabilization efforts.<\/p>\n
The bank cited the huge unresolved debts of the private
\nsector, widespread corporate distress, continuing difficulties in
\nthe banking sector, an unacceptably low level of output, and
\nincreasing poverty as the most pressing problems facing the
\ncountry.<\/p>\n
\"This is no time for complacency,\" said World Bank country
\ndirector for Indonesia Mark Baird when releasing the bank's
\nannual country report on Indonesia.<\/p>\n
The report recommended three policy priorities to consolidate
\nstabilization gains in the short-term, including pressing ahead
\nwith bank and corporate restructuring, protecting the poor, and
\ncareful management of fiscal balances.<\/p>\n
The report -- titled \"Indonesia From Crisis to Opportunity\" --
\nwill serve as a briefing report for the upcoming July 27-28
\nConsultative Group on Indonesia (CGI) donors meeting in Paris.<\/p>\n
The report said the proximate cause of the country's economic
\ncrisis -- the large amount of short-term private sector unhedged
\nexternal debt -- remained unresolved.<\/p>\n
\"Most of these debts are owed by distressed corporates, many
\nof which are insolvent or have ceased operations,\" the bank said.<\/p>\n
Indonesia's private sector has some US$72 billion in overseas
\ndebts.<\/p>\n
\"The banking system, despite some restructuring, continues to
\nlabor under the weight of nonperforming loans and inadequate
\ncapital,\" the report said.<\/p>\n
\"This, together with the collapse in domestic demand, has
\nmeant that output continues to be at unacceptably low levels and
\nthe increase in poverty has undone a decade and a half of
\nprogress in poverty reduction,\" it added.<\/p>\n
The bank said the economy was still operating at 15 percent to
\n20 percent below capacity.<\/p>\n
\"Resolving these challenges will require steady and determined
\neconomic reforms, placing a premium on policy continuity as the
\ncountry goes through political transition.\"<\/p>\n
The bank stressed that in the banking sector the main focus
\nshould be on restructuring state banks, strengthening bank
\nsupervision, and accelerating the recovery of various assets
\nunder the Indonesian Bank Restructuring Agency.<\/p>\n
For the corporate sector, priority should lie in strengthening
\ninstitutions that facilitated voluntary debtor-creditor
\nnegotiations, improving the credibility of the bankruptcy threat
\nand emphasizing corporate governance, the report said.<\/p>\n
The bank also stressed the need for Indonesia to manage fiscal
\nbalances carefully by placing greater emphasis on domestic
\nresource mobilization and reduced borrowing, especially from
\nabroad.<\/p>\n
\"To a large extent, these policy priorities already constitute
\nthe central elements of the government's reform program, and the
\nreport highlights their importance, urging the authorities to
\nstay the course as the nation undergoes political transition,\"
\nnoted World Bank economist Vikram Nehru.<\/p>\n
The report identifies three medium-term policy priorities:
\ndevelop and deepen institutions, especially the legal and
\njudicial system and the civil service; strengthen markets and
\nmarket institutions; and ensure growth is environmentally
\nsustainable.<\/p>\n
The bank said public (government) debt had jumped from 24
\npercent of gross domestic product (GDP) at the end of June, 1997,
\nto 60 percent at the end of June, 1998, and was expected to reach
\n102 percent by end-1999, or a fourfold increase from the pre-
\ncrisis period. Official foreign debts alone are now estimated at
\nalmost $70 billion.<\/p>\n
A full 16 percentage points of this increase was a direct
\nresult of the rupiah's depreciation and the impact of inflation
\non GDP, 11 percentage points were generated by a rise in external
\ndebts and 52 percentage points by the expected consequences of a
\ndomestic treasury bond issue to finance the bank restructuring.<\/p>\n
CGI loans<\/p>\n
The World Bank chairs the CGI donors grouping.<\/p>\n
Baird stressed that it was important for the upcoming CGI
\nmeeting to proceed as scheduled, particularly to ensure financing
\nfor the current state budget ending in March 2000.<\/p>\n
Baird confirmed an earlier statement by the government that it
\nwould need between $5.5 billion to $6 billion from the CGI
\ngrouping.<\/p>\n
Much of the external financing for this fiscal year was
\ncommitted by CGI members earlier this year. One of the functions
\nof the meeting was to confirm the amount, and ensure that
\nfinancing needs in the fiscal year would be fully met, Baird
\nsaid.<\/p>\n
Several non-governmental organizations and opposition
\npolitical parties have demanded the CGI meeting be delayed until
\na new government -- a consequence of the June 7 elections -- is
\nformed later this year.<\/p>\n
But Baird said proposals had been made to arrange another
\nmeeting with the next or new government in six months time.<\/p>\n
Chairman of the National Development Planning Board (Bappenas)
\nBoediono said the government would not propose another debt
\nrescheduling at the upcoming CGI meeting.<\/p>\n
\"We realize that this is the authority of the next
\ngovernment,\" Boediono said at the same news conference on
\nWednesday.<\/p>\n
However, he added that the current administration would
\ncomprehensively brief major creditors on the debt situation.<\/p>\n
The CGI meeting usually includes discussions about the
\ncountry's sovereign debt situation, which would be the basis for
\nfurther talks at the Paris Club of creditor nations in September.<\/p>\n
Last September the government managed to obtain approvals from
\nthe Paris Club official (sovereign) creditors to reschedule by 11
\nto 20 years some $4.7 billion in debts falling due between August
\nand March 2000. (rei)<\/p>",
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