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.