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)