World Bank slashes loan<\/p>\n
The World Bank has finally decided to restructure its lending
\nprograms in Indonesia, slashing its annual loan commitment for
\nthe next three years to only US$400 million, or less than one
\nthird of the previous level, but granting the country access to
\nits interest-free credit window, the International Development
\nAssociation.<\/p>\n
The immediate impact of the new loan program will begin
\naffecting the government's capital inflows only next year. This
\nis because the $1.3 billion in loans pledged by the World Bank at
\nthe latest meeting of the Consultative Group on Indonesia (CGI)
\nin Tokyo last October remains available for use this year.<\/p>\n
However, starting next year, official capital flows will
\ndecline significantly because the World Bank itself usually
\naccounts for one third of the combined annual loan pledges from
\nthe members of Indonesia's CGI creditor consortium. In the 1990s
\nthey ranged from $4.5 billion to $4.7 billion.<\/p>\n
Though the steep loan cut was made in Washington on Tuesday
\nonly after consultations with the Indonesian government, several
\nfactors seemed to have forced the World Bank to adopt the new
\npolicy. Foremost among them is that the stock of the bank's
\noutstanding loans to Indonesia is already close to its
\nconcentration limit for a single large borrower, which in this
\ncase amounts to about $13.5 billion. Moreover, the World Bank's
\nshare of Indonesian overseas public debt service already exceeds
\n20 percent. The country's official foreign debt of around $70
\nbillion is already way above what is considered a manageable
\nlevel.<\/p>\n
However, the slash in loan will slightly be offset by
\nadditional benefits Indonesia will get from the restoration of
\nits access to IDA's interest free loan. This was closed in 1981
\nafter the nation's per capita income rose above $925 a year --
\nthe threshold that qualifies a country borrower to that facility.
\nIndonesia's per capita income has fallen to an estimated $580 due
\nto the melting of the rupiah value and the economic crisis.<\/p>\n
Besides charging no interest, IDA credit also has a much
\nlonger tenure of 35 to 40 years, including a 10-year grace
\nperiod. This compares favorably with the 15 to 20 years for World
\nBank loans which have an annual interest charge of around 6.5
\npercent. This is precisely the kind of borrowing Indonesia now
\nneeds, given its severe liquidity crisis and heavy debt service
\nburdens.<\/p>\n
In contrast to World Bank loans which usually go mostly to the
\ndevelopment of basic infrastructure, IDA allocates the bulk of
\nits credit to poverty alleviation and social-sector programs,
\nwhich also happen to suit better the nation's needs today. This
\nis because the worsening living conditions caused by the economic
\ncrisis have plunged more than 100 million people into absolute
\npoverty.<\/p>\n
However, national per capita income below $925 will not
\nautomatically entitle a country to this facility. The competition
\nfor IDA credit is quite fierce as the demand from poor nations is
\nalways far larger than the supply. Different from the World Bank
\nwhich has both the authorization and capability to raise its
\nlending funds from the capital market, IDA derives its funds only
\nfrom government contributions and the World Bank's profits.<\/p>\n
The competition lies mostly in borrowers' willingness and
\nability to pursue good governance (which means combating
\ncorruption), sound macroeconomic management and bank\/corporate
\nrestructuring. The World Bank did promise to eventually increase
\nits loan and IDA credit to Indonesia up to $1 billion a year if
\nthe country could meet those conditions but this is most likely
\na long shot.<\/p>\n
Herein lies the greatest challenge that the country is facing.
\nThough the World Bank did not spell it out bluntly, one could
\neasily infer from various recent remarks made by its senior
\nexecutives that the bank has been disappointed with the poor
\nrecord of the government related to the implementation of good
\ngovernance and policy reforms and this is also one of the main
\nreasons as to why it cut its loan program. This poor performance
\nhas also been responsible for the delay of the third tranche
\ndisbursement of the International Monetary Fund's $5 billion
\nbailout funds from December.<\/p>\n
The government therefore would be well advised to see the
\nretrenchment in the World Bank's loan program more as a friendly
\nwarning from a loyal supporter (which has greatly assisted the
\ncountry's economic development since 1968). It should jolt the
\ngovernment to pursue more persistently its administrative reform
\nand restructuring programs.<\/p>\n
After all, the conditions imposed by the World Bank are not an
\nattempt to intervene in Indonesia's domestic affairs as often
\nsuspected by some officials and politicians. They are very
\nsimilar to those set by the IMF for its bailout funds and also
\nare the requirements asked for by other foreign creditors and
\ninvestors.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/world-bank-slashes-loan-1447893297",
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