Indonesia financial sector key to recovery: World Bank

Indonesia financial sector key to recovery: World Bank

PARIS (Reuters): Restoring links between banks and
corporations is the key challenge in the restructuring process
required to prevent the Indonesian economy collapsing, Jean-
Michel Severino, World Bank vice president, east Asian and the
Pacific Region said on Wednesday.

"The vicious cycle of shattered confidence and economic
downturn that is driving the Indonesian economy to the brink of
collapse must be broken. The linkage between banks and
corporations is the key challenge of this restructuring process,"
Severino told a meeting of international donors.

"At current exchange rates, interest rates and market
conditions, most Indonesian corporations and small and medium
scale firms are bankrupt," he said, according to a copy of his
speech distributed by the World Bank, which is hosting the
meeting.

"In turn, most banks are insolvent as bad debts climb to
heretofore unheard-of levels," he said.

Severino said neither the international community nor the
government should "bail out the private sector". But at the same
time he said the World Bank believed "this exceptional situation
requires an exceptional involvement of the government and of the
international community".

"We are faced (with) a systemic collapse of both the corporate
and banking sectors for reasons that are not all related to
individual failure and the perversities of specific
stakeholders," Severino said.

He also said that supporting Indonesia while it struggles to
get its economy working again "will take humanitarian assistance
on a very large scale".

"It will take donor commitment, not just for this year but for
next year and the year after at least," Severino said.