Indonesia risks destruction, ADB Institute's dean says

Indonesia risks destruction, ADB Institute's dean says

TOKYO (Dow Jones): Indonesia risks destruction as the country's fractious regions spin out of control of the embattled president and as the economy deteriorates, the dean of the Asian Development Bank Institute said Monday.

"Everybody is worried" about Indonesia, ADBI dean Masaru Yoshitomi told Dow Jones Newswires in an interview. "The nation itself might be destroyed."

One reason, he said, is the increasing decentralization of the far-flung island nation - a far cry from the central control under longtime dictator Soeharto.

Another factor has been International Monetary Fund reforms that have failed to revive the economy, he said.

"In Indonesia, there was no recovery" from the 1997-98 Asian financial crisis, Yoshitomi said. "These are not well-monitored markets anymore. This is anarchy."

Rather than curing Indonesia's economic woes, the IMF reforms "made the disease even worse," he said.

Yoshitomi, who heads the research arm of the Manila-based Asian Development Bank, said economic recovery would be very difficult, given Indonesia's political instability.

President Abdurrahman Wahid is under intense pressure to resign as lawmakers, who accuse him of corruption and incompetence, prepare to impeach him Aug. 1.

The political vacuum in Jakarta has allowed separatists in parts of the multiethnic nation to grow bolder in their challenges.

Vice President Megawati Sukarnoputri, who heads Indonesia's largest political party, has emerged as a strong alternative for the presidency, even though she has said virtually nothing about policies. She has also rejected several offers by Wahid to share power as a way of avoiding his ouster.

Asian economies generally, Yoshitomi said, are slowing, largely due to the decline in the "new economy" of the U.S. and falls in the U.S. Nasdaq market, Yoshitomi said. "They relied on the new economy, and their stock markets are strongly correlated with Nasdaq because of technology stocks."

Around 40% of Asia's exports consist of products related to information-technology industries, including the communications sector, Yoshitomi added.

Moreover, he said, Asian governments are getting nervous because the global slowdown is exacerbating domestic structural problems, such as weak banking sectors.

To pull themselves out of their economic doldrums, Asian governments should seek to implement traditional macroeconomic policies, Yoshitomi said.

"But as in the case of Japan, the sequencing is important because there are still banking problems, and corporate restructuring still should be done more rigorously," he said.

Asian nations' problems resemble those in Japan, said Yoshitomi, a former senior Japanese bureaucrat. In both cases, banks are awash in cash but loan demand remains weak.