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.