More political will needed for RI recovery: Bankers

More political will needed for RI recovery: Bankers

BANGKOK (Bloomberg): Ailing Asian nations -- particularly Indonesia -- will need to show more political will to reform their economies in order to boost investor confidence and help the poor and middle class, said officials from international agencies and development banks.

Indonesia, Thailand and South Korea, which each received multi-billion-dollar aid packages through the International Monetary Fund the past 18 months, are all moving forward on finance industry and legal reform.

But the pace of change needed to bring about recovery from recession is hostage to each country's political system, said officials attending a World Bank conference in Bangkok last week on social issues stemming from the Asian economic crisis.

"Thailand is a little farther along, as there is a sense that this government may be the best choice for now," said Jayasankar Shivakumar, country director in Thailand for the World Bank.

"In Indonesia though, you can't even say there is light at the end of the tunnel because there is no tunnel yet."

The biggest uncertainties are in Indonesia, recipient of a US$49 billion program through the IMF. There, President B.J. Habibie heads a government short of cash, an economy that contracted 14 percent last year and a nation short of food in many places.

Still, Habibie shares much of his power base with his predecessor, Soeharto, who was pushed out of office in May 1998 amid violent protests and riots.

The country will hold a general election in June -- its first since the end of Soeharto's 32-year rule -- and aims to select a president later in the year.

Moreover, the International Labor Organization estimates that only about a third of aid in Indonesia reaches the poor because of corruption and bad planning.

"Habibie has done a much, much better than most people expected, which doesn't necessarily make him the right leader," said Peter Heller, deputy director of the IMF's fiscal affairs department.

"But it's sometimes hard to second guess a political system. Every choice and decision can have major ramifications."

As for Thailand, among the obstacles for Prime Minister Chuan Leekpai -- the one-time opposition leader who hammered together a six-party coalition government four months after the IMF agreement was signed -- is a group of senators who oppose new bankruptcy and foreclosure laws bankers say are vital to attract foreign investment and induce banks to begin lending again. About 46 percent of bank loans are delinquent.

"The future focus must be on small- and medium-size enterprises," said Shoji Nishimoto, director of the programs department for the Asian Development Bank. "A lot of the big companies should not be kept around."

Thailand has already tapped about two-thirds of its $17.2 billion program. It's raised a couple billion more through loans and guarantees from the World Bank and Asian Development Bank.

As for Korea, among biggest tests is its willingness to deal with the countries industrial groups, or chaebols, which have huge debt. Prime Minister Kim Dae Jung also faces decisions on how to fund social safety programs which didn't exist before the crisis.

Korea's unemployment in December surged to 7.9 percent, triple what it was a year earlier, when a $58 billion aid program was arranged. Kim, formerly the opposition leader, was elected about two weeks after the IMF package was arranged.