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US officials paint gloomy picture

Reuters - July 30, 1998 (abridged)

Carol Giacomo, Sydney – Conditions in financially embattled Indonesia are expected to worsen significantly by the year's end, according to US and Asian officials. Some of the estimates go far beyond current projections, fanning fears that the world's most populous Moslem nation faces starvation and could implode.

The World Bank has projected that Indonesia's economy would contract by 15 percent this year but new US estimates put the figure as high as 30 percent, US officials said. An Asian diplomat put the projected decline in gross national product at 25 percent. Indonesia's inflation rate has climbed to about 80 percent but US officials see that figure going over 100 percent, while unemployment probably will be at 25 percent.

The new numbers lay behind repeated expressions of concern in recent days by US Secretary of State Madeleine Albright and Defence Secretary Wiliam Cohen on separate trips to Asia. Cohen, in Sydney with Albright for annual US-Australia security talks, flies to Indonesia on Friday for talks with military and political leaders.

Albright has spoken publicly of "the potential for social unrest" in Indonesia and said she was "very concerned about the social safety net" there and in other countries of the region.

An Asian diplomat said US estimates seemed a bit gloomier than others "but any of these figures are horrible." He said he expected at least 20 million Indonesians to be unemployed by year's end and called that figure "a blow out, a huge increase in unemployment." Albright, also speaking on Australian television, said 100 million Indonesians – half the population – is living in poverty.

Growing concerns about the social impact of the financial crisis have caused many countries, like Australia and the United States, to press the IMF to boost Indonesia's social safety net. Albright this week stressed a US commitment to "see that the urgent humanitarian needs of the Indonesian people are met."

US and Asian officials said in addition to political and economic reforms, Indonesia must move quickly to encourage ethnic Chinese to reinvest their capital in the country. Ethnic Chinese have faced increasing attacks, including a riot and gang rapes of Chinese women in May that are now said to have been part of an organised campaign against this minority.

"Our estimates are that 70 percent of Indonesia's capital is in the hands of ethnic Chinese who didn't flee the country physically but have withdrawn their capital," Wilcox said. "What we believe Habibie has to do or the Indonesian government has to do is regain the confidence of those people to allow them to bring their capital back to Indonesia," he said.

Without that, it will be "extremely dificult" for Indonesian authorities to successfully refloat their economy, he added. Habibie must "stand up and tell (ethnic Chinese) we will protect you," officials said.

US officials said ethnic Chinese control Indonesia's infrastructure but because of tensions, the intra-island transport system and distribution system have been interrupted. Within two months, the country will face "profound problems of starvation and desperate malnutrition," a US official said.