World Bank predicts RI contraction will reach 15%

World Bank predicts RI contraction will reach 15%

SYDNEY (Reuters): A World Bank executive said yesterday that
the contraction in the Indonesia economy could be up to 15
percent, higher than forecast by policymakers two months ago.

"The worst (of the Asian nations) will be Indonesia at 10-15
percent," Jean-Michel Severino, World Bank vice president for
East Asia and the Pacific, said in a speech.

"Right now we are running the numbers (on the final
forecast)," Severino said.

The country's latest budget, agreed with the International
Monetary Fund in April, projected an economic contraction of five
percent and inflation of 45 percent in 1998.

But the IMF has since said the forecasts will need to be
revised. Its top Asia expert Hubert Neiss has said he had no
reason to doubt forecasts of a contraction of 10 percent or more
this year.

The Asian economic crisis, which began with sharp currency
declines in mid-1997, has led to bailout packages led by the
International Monetary Fund for Thailand, Indonesia and South
Korea totaling more than US$100 billion.

Indonesia will receive than US$40 billion but disbursement has
been delayed by upheaval in the country earlier this year which
saw Soeharto replaced as president by B.J. Habibie following
social unrest and concerns over commitment to economic reform.
Severino said hardship in Indonesia was growing.

"We see an additional 20-30 million people in Indonesia below
the poverty threshold which is a dollar per capita per day."

Asia

Severino yesterday also urged G-7 nations to do more to help
smaller Asian economies, saying such aid would also assist
Japan's recovery.

In an interview with Reuters Television, Severino said East
Asia was an important market for Japanese exports and also noted
Japanese banks are by far the largest lenders to the region.

"I think the key is that East Asia matters for Japan and Japan
matters for the G-7," said Severino.

The Group of Seven nations is holding a meeting of its deputy
finance ministers and central bank officials, along with
representatives from the Asian Development Bank, World Bank and
IMF in Tokyo on Saturday.

Severino, who earlier told an Australian business group the G-
7 should help to finance budget deficits among weaker economies
in the region to avoid the risk of depression, said such aid was
in the G-7's interests.

He said regional governments should be running budget deficits
over the next two to four years, with these deficits needing soft
loan funding. To do otherwise would force up domestic interest
rates.

"This money has to come from the G-7 and from the developed
countries in the region," Severino said.

"The ADB and the World Bank have more or less reached their
head limits," Severino said, adding it was critical that funds be
found for high levels of social expenditure in the region.