Indonesia poses risk to neighbors: WB official

Indonesia poses risk to neighbors: WB official

TOKYO (Dow Jones): The prospects for a sustained economic recovery across southeast Asia hinge on conditions in Indonesia, where recent developments have been 'mixed,' a senior World Bank official said yesterday.

Mark Malloch Brown, vice president of the World Bank External Affairs Department, said during a press conference, 'We can be cautiously optimistic about progress around the rest of the region, but much hinges on the thread of a successful resolution of problems in Indonesia. The signals there have been mixed.'

Brown warned that renewed instability in Indonesia could cause a contagion effect in neighboring countries, putting in jeopardy the nascent recoveries in those countries.

Brown said Indonesia's problems largely reflect political issues rather than the state of the real economy and he emphasized that unless President Soeharto can restore confidence in his leadership, "There's very little we or anyone else can do for him."

Brown, in Tokyo to announce $4.59 million in new financial support from Japan to help fund technical assistance in Asia, noted that the recent instability in Indonesia was due largely to outflows of domestic capital and not to a speculative onslaught by foreign investors.

"It is important that we all understand that President Soeharto's enemy isn't the International Monetary Fund, the World Bank or outside leaders; it's confidence, both domestic and international," Brown said.

Asked to elaborate on which among the 'mixed signals' might be cause for optimism, Brown said, "Well, there are more reasons to be cautious than optimistic."

He said that there were some hopes that Soeharto, in forming his next cabinet, might put together a cohesive team that would "tackle problems with energy" in the same way new administrations in Thailand and South Korea have done.

But recent comments from Soeharto indicating he's unwilling to reform the political process have tainted such hopes.

"I would say we are quite pessimistic at the moment," Brown said.

At the same time, Brown said that during a meeting with Soeharto last month, the Indonesian leader expressed a desire to preserve his achievements in reducing poverty in the country.

"The tone was very much that Soeharto wants to protect his achievements," Brown said, adding that with such a goal in mind, the president "is always going to be open to making right decisions and getting reform back on track."

Brown said that while World Bank structural adjustment loans to Indonesia have been suspended along with all assistance included in a rescue program orchestrated by the IMF, the bank is considering the possibility of extending new loans for basic needs such as food and medicine.