Wahid faces economic mountain

Mr Wahid: The US says it can do business with him

By Economics Correspondent Andrew Walker

The new Indonesian President Abdurrahman Wahid faces a difficult economic situation with the country still suffering severely from the effects of the East Asian financial crisis.

In addition there are allegations of corruption surrounding one of Indonesia's banks which led the International Monetary Fund to suspend payments of a rescue loan.

Indonesia was the country most severely affected by the 1997 Asian crisis.

The demonstrations that followed played a key role in undermining the regime of President Suharto and preparing the way for the elections that have made Mr Wahid president.

Now the IMF thinks that Indonesia is in the early stages of economic recovery. But it will take many years to put right all the social problems that followed the crisis - the rise in unemployment and poverty, and the middle classes whose assets have been wiped out.

Rebuilding banks

The US has described Mr Wahid as someone they can do business with. He appears to be committed to continuing the economic reforms begun by the previous government, and negotiated as part of the rescue package backed by loans co-ordinated by the IMF.

A central element in that is rebuilding the banks many of which were made insolvent by the crisis.

He is also keen to make rapid progress with investigations into corruption allegations associated with Bank Bali.

It paid $80m to a company associated with the Golkar Party of Mr Wahid's predecessor, President BJ Habibie.

IMF and World Bank lending programmes were delayed because Mr Habibie resisted publication of the reports of the investigations.

The Indonesian Supreme Court has now authorised publication, a decision which has been welcomed by the IMF.

A rapid resolution of the issue would probably be followed by an IMF review of economic policy and performance, with a much improved chance of the loans being resumed.