RI in throes of fragile recovery

RI in throes of fragile recovery

BANGKOK (AP): Indonesia is showing signs of a fragile recovery
after three years of economic and political turmoil, but it will
take years for the debt-ridden finance sector to be restored to
health, the Asian Development Bank reported Wednesday.

Indonesia's gross domestic product is set to grow by 4 percent
in 2000, compared with 0.2 percent growth last year and a painful
shrinkage of 13.2 percent in 1998, the Manila-based ADB said in
its annual economic survey, Asian Development Outlook 2000.

"Critical to the forecast is the assumption that political
conditions in Indonesia will not deteriorate further and the rest
of Asia's strong rebound will continue," said the report,
released in Bangkok.

Indonesia was hardest hit by the financial turmoil that swept
through East Asia in 1997. The economic crisis triggered a
political upheaval, with longtime autocrat President Suharto
forced to stand down in May 1998.

But the sometimes violent arrival of democracy and a
government committed to reform had provided "new and historic
opportunities for the country to confront its problems," the bank
said.

The report commended the new government of President
Abdurrahman Wahid for giving the highest priority to combating
poverty.

However, it noted that the fragile recovery made in 1999 had
not prevented further increases in unemployment, and wages
remained 20 percent to 25 percent below pre-crisis levels.

Although the low level of the nation's currency, the rupiah,
in foreign exchange markets made Indonesia's exports more
competitive than those of other crisis-hit economies, this
benefit was undermined by the high level of corporate
indebtedness and lack of liquidity.

The ADB said that 60 percent to 85 percent of all loans in the
Indonesian financial system are not being paid back.
Recapitalization costs are estimated at Rp 643 trillion (US$89
billion), equivalent to 60 percent of gross domestic product.

"Of all the crisis-affected countries, Indonesia's financial
and corporate problems have been the most acute," the report
said. "It will likely take several years to restore the financial
sector to health."

Implementation of a bankruptcy law that was revised in 1998
was essential to speed up corporate debt restructuring, which had
got off to a slow start because of political constraints, the
bank said.