Jennifer Hewett, Washington – The amount of poverty in Indonesia is likely to double during the next year, according to a new report from the World Bank which says that no country in history has suffered such a dramatic reversal of fortune. The report's tone signals a far more accommodating approach towards the Indonesian Government's attempt to preserve social stability despite the financial costs.

In contrast to earlier calls by the International Monetary Fund for Indonesia to drastically reduce subsidies, for example, the World Bank said the Government must ensure the availability of food and other essentials at affordable prices.

The report's author, Mr Vikram Nehru, said the level of subsidies was not sustainable over the long term and that they should be better targeted towards the poorer and more vulnerable parts of the population. But the bank also said that keeping rice prices low was of the utmost priority to the new Government. "The Government must do all it can to protect the poor from the harshest effects of the crisis," the report said.

"In particular it must protect the poor against catastrophic shortfalls in consumption and ensure that short-term declines in real income and public spending do not lead to irreversible loses in human capital..." The bank called for labour-intensive public works programs to provide job opportunities for the poor, including a focus on the employment of women. It predicted that the economy could contract by between 10 and 15 per cent this year, with inflation exceeding 80 per cent.

The report warned that such a dire and unprecedented crisis meant the Government had no choice but to seek additional financing from the international community – about an extra $US8 billion ($12.6 billion) this financial year. "The seriousness and urgency of Indonesia's economic and financial crisis cannot be overstated," the report said. "This has to be reflected in the fundamental nature of the reforms that are pursued and the speed and integrity with which they are implemented. "For its part, the international community must come forward in this time of Indonesia's greatest need with substantial increases in financial and technical assistance."

The bank's past reports on the Indonesian economy are now attracting criticism for their tolerant approach towards the risks and the extent of corruption. Mr Nehru, who recently completed a well-respected report on China's economy, has only been working on Indonesia for the past few months. He said the Government's other priorities should be to deal with the debt problems, to resuscitate the banking system and to improve the general system of governance and transparency in Indonesia's financial and commercial transactions.

But the report warned that the current problems were just the beginning of the crisis. It blamed the extent of the crisis on four main causes:

The rapid build-up of private foreign debt; The flaws in the Indonesian banking system, meaning the banks were poorly positioned to cope with any deterioration;

An inadequate system of governance, colouring perceptions of how well Indonesia would be able to manage the problems;

Terrible political timing, given the uncertainty about the future of the Soeharto Government and the paralysis of the Cabinet.