ADB gives RI $1.5b loan to meet budget deficit

ADB gives RI $1.5b loan to meet budget deficit

JAKARTA (JP): The government and the Asian Development Bank
(ADB) signed a US$1.5 billion loan agreement yesterday to finance
Indonesia's budget deficit and strengthen its balance of
payments.

ADB Vice President Peter Sullivan said the loan would be
disbursed in three tranches during the 1998/1999 fiscal
year.

"The first tranche of $550 million will be available today
(yesterday) after our lawyers complete the paperwork," Sullivan
told reporters following the loan signing ceremony.

The ADB approved the loan Thursday following an agreement
between the government and the International Monetary Fund on a
revised bailout package.

It has a maturity period of 15 years with a grace period of
three years, and is divided into three parts: policy loan,
technical assistance loan and investment loan and equity
participation, according to a statement from the Ministry of
Finance, which has been appointed as the executing agency for the
loan.

The policy loan of $1.4 billion may be used to finance
imports, strengthen foreign exchange reserves or finance the
pared-down state budget, it said, adding that this part of the
loan would be disbursed in three tranches.

The statement said the technical assistance loan of $50
million would be used to finance the restructuring of the banking
sector, strengthen the legal and regulatory framework, boost the
supervision and management mechanism and increase disclosure and
transparency of financial information.

The investment loan of $47 million would be allocated to
support the development of an entity to facilitate a secondary
housing mortgage facility, it said.

Another $3 million in equity investment would be added to
allow the ADB to have a 10 percent to 20 percent stake in the
housing mortgage entity.

The Japan Exim Bank earlier this month extended $1 billion in
a trade loan to help in stimulating the country's weak export
performance due to overseas rejection of domestic letters of
credit.

"The Exim and ADB loans are reflections that international
confidence has started to rise," Finance Minister Bambang
Subianto said at yesterday's press conference, which was also
attended by IMF Asia-Pacific Director Hubert Neiss, ADB program
director Shonji Nishimoto, Bank Indonesia Governor Sjahril
Sabirin and the chairman of the National Development Planning
Board (Bappenas), Boediono.

"I hope additional assistance by international donors,
including from the IMF, will follow soon to help in financing the
huge subsidies," said Neiss. He added that subsidies were
unavoidable to help the poor in surviving the country's worst
economic crisis in three decades.

Foreign donors

Indonesia will have to rely on foreign donors to finance the
budget deficit resulting from huge subsidies for food, medicine,
fuel, electricity and creation of employment.

The IMF is expected to soon disburse its next $1 billion
tranche in a balance-of-payment loan to Indonesia. This, together
with the ADB's loan and the World Bank's commitment would only
total $4 billion, falling short of the more than $8 billion
needed to cover the budget deficit.

The IMF earlier disbursed $4 billion, out of its $10 billion
commitment, which is part of the total $43 billion bailout fund
pooled together by the ADB, WB and major donor countries.

Bambang said the government would continue looking for
additional overseas funding, including from the Consultative
Group for Indonesia of donor countries, which is expected to
convene late next month.

Budiono said the government would negotiate with the CGI to
shift the use of the aid to finance the social safety net
program.

Aid from the CGI had traditionally been used for financing
infrastructure projects.

Sjahril added there would soon be another $1 billion from a
Japanese lending institution.

Several economists had earlier urged the IMF to allocate at
least $3 billion in the upcoming disbursement because the
economic situation had deteriorated further than expected. (rei)