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.