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)