WB says Asia recovering, RI fragile

WB says Asia recovering, RI fragile

SYDNEY (Reuters): The World Bank said on Friday Asia was showing early signs of economic recovery but the situation remained fragile, with Indonesia's economic and political future resting on free and fair elections in June.

"We are seeing early signs of economic recovery but it is still a very fragile situation," World Bank East Asia and Pacific vice president Jean-Michel Severino told reporters in Sydney.

"It is a medium-term endeavor, a lot of work still needs to be done," said Severino, adding economic restructuring in Asia could take years.

In Sydney to attend a conference on the Asian crisis, Severino cited Indonesia as the country in the region which would need the longest period to resolve its economic problems.

In contrast, he said South Korea, Thailand, and Malaysia were at a more advanced stage of recovery.

"Indonesia is in a very deep crisis that has very important political roots...and it is understandable that the recovery will take quite a long time," Severino said.

Severino said Indonesia must not only maintain economic reforms to avoid a complete collapse of the recovery process, but must ensure national elections in June are free and fair.

"The reform process has to keep a minimum momentum, because if it collapses completely then energies will be completely mobilized out of economic policy," he said.

"It's absolutely critical the elections take place in a fair, transparent, good way that allows for the building of a strong and legitimate government," he added.

He said. "This is the core focus in Indonesia and it is right that it is a core focus for everybody."

Indonesia was one of the last Asian nations to succumb to the region's economic crisis, but once hit the archipelago of 200 million people erupted into political and social unrest and riots, forcing then President Soeharto to quit in May 1998.

New President B.J. Habibie has promised political reforms, but Indonesia remains racked by political and ethnic violence as it undergoes fundamental economic, political and social change following the end of Soeharto's 32-year reign.

Indonesia will have a general election on June 7 and presidential election in November.

He said the World Bank was not concerned at Jakarta's delay in deciding which of Indonesia's ailing banks would be closed and which saved under a government bail-out scheme.

Indonesia has said at least 40 banks are likely to close because they will be unable to submit satisfactory business plans and meet the minimum capital standards as demanded under the government's recapitalization program.

"Let's remember the quick closing of banks early in the process was considered a big policy mistake," Severino said.

"What matters is the quality of the outcome and if they take a couple of additional weeks to get there, that's fine."

The World Bank executive did not agree with commentators predicting total social and economic collapse.

"It may be a complicated situation to manage but very few think there will be a collapse," he said.

In February the World Bank approved US$400 million in aid to Indonesia. The $400 million is the second and final tranche of a $1.0 billion loan by the bank to support Indonesia's economic reforms. The first $600 million was released when the bank agreed to the loan in July 1998.