Confidence key to Indonesia's recovery: WB

Confidence key to Indonesia's recovery: WB

JAKARTA (JP): World Bank president James Wolfensohn said here
on Sunday that Indonesia's economic recovery was underway but
social issues and politics remained a factor affecting
confidence.

Speaking at a news conference on the eve of his four-day visit
to the country, Wolfensohn said Indonesia needed to build
investors' confidence in the country so that they would put money
here to help maintain economic recovery.

"I think you can cautiously say it's an upturn. What is needed
is not economic activities, but the return of confidence on the
social, legal and investment level," Wolfensohn said.

The Indonesian economy, according to the Central Bureau of
Statistics, grew better than expected to 0.23 percent last year,
after contracting 13.2 percent in the previous year. The bureau
expects the economy to grow stronger by 4 percent this year.

Wolfensohn, however, warned that confidence in the ongoing
recovery process from the financial crisis that plunged millions
below the poverty line and left Indonesia's banking system in
ruins would depend on many factors and would probably be slow.

Indications of not-yet-returning confidence was the slow pace
of investment activities by small and medium enterprises in the
country.

"They (small and medium enterprises) have adequate funding,
but not invested. And investment is not being made because
everyone wants to see where the country is going socially and
politically," he said.

According to government data, foreign investment approvals for
the whole year of 1999 fell 22 percent to US$10.6 billion over
the previous year as political instability deterred investors.
Foreign investment approvals fell further by 74 percent in
January this year to $95.8 million over the same period of last
year.

Wolfensohn, nevertheless, said that indications show that the
economy was on the move and investment should soon flow in once
uncertainties disappeared.

"I would say that on signs that I have seen it looks to me
that all show positive trends. But everybody would like to see a
few more months of that development, and I have a sense that the
government would like to see that too," he said.

Apart from investment, Indonesian economic recovery also
depends very much on the restructuring of bank and corporate
debts, which has been proceeding quite slowly.

Wolfensohn said the issue of corporate debt and bankruptcy
issues were all rather new in this country, and therefore it was
understandable if resolving them proved quite slow.

"But there are signs that there is a lot more progress today
than six months ago. So, I would say cautiously that we are very
supportive and hopeful that it will succeed," he said.

Wolfensohn, on his fourth visit to Indonesia and first in two
years, met with various government and private sector leaders,
including with President Abdurrahman Wahid and his economics
ministers.

He said he was impressed by the government's commitment to
confront and tackle tough issues such as bank and corporate
restructuring, poverty and social protection, environmental
management and corruption.

In addition, he also spent time in a rural village in West
Java, talking with people about coping with the crisis.

"I was struck by the level of energy and optimism that the
people of Indonesia feel. There was no rancor. I have heard their
messages and agree that the opportunity for real change is here,"
he said.

After spending four days in Indonesia, the World Bank chief
will fly to East Timor on Monday to access the situation in the
former Indonesian province before the bank disburses aid to the
territory.

Wolfensohn again denied allegations made in a report last week
on Australian television that the bank's social safety net loans
to Indonesia had been used by the Indonesian government to
finance anti-independence militia that waged a reign of terror in
East Timor last year.

"That's simply, absolutely, and completely not correct, not
correct, because we did not send any money (to the Indonesian
government) till January (this year).

"If the Indonesian government, in some points, financed the
militias, they could have done it from any source of funding.
They had adequate reserves themselves to do it," he said.

When pressed further on the issue, Wolfensohn said sharply:
"I'm actually Australian. I grew up with the press in Australia.
I know it very well ... I have many years dealing with Australian
journalists, trust me." (rid)