BI downplays WB fund delay

BI downplays WB fund delay

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
Wednesday the reported delay in disbursement of a US$600 million
World Bank loan would not negatively impact the country's crisis-
hit economy due to improvements in macroeconomic conditions.

He said the bank's funds were intended to help finance the
country's social safety net program, which is designed to assist
the poor in surviving the economic hardships. But he believed the
latter were beginning to subside as the economy picked up.

"A short delay will not have a negative impact on the economy
because the macro condition has improved," he told reporters on
the sidelines of a hearing with House Commission VIII on finance
and state budget. It is deliberating the central bank bill.

Sjahril added there was no official statement from the World
Bank to Bank Indonesia on the delay.

"We have yet to receive a formal report from the World Bank."

The Asian Wall Street Journal reported on Tuesday that the
World Bank delayed the disbursement after it failed to reach
agreement with President B.J. Habibie's government on new
measures to monitor the allocation of funds.

The bank was concerned the money would be misused ahead of the
June 7 general election, the report cited bank officials as
saying.

It continued that the bank would not proceed with the
disbursement until a new monitoring mechanism to better track the
funds was agreed upon with the government.

Disbursement was originally scheduled for March 31, but
activist groups and opposition parties in Indonesia asked the
World Bank to delay the measure until after the elections, the
paper said.

Opposition figures feared the ruling Golkar Party could use
the money to support its reelection bid.

State Minister of National Development Planning and chairman
of the National Development Planning Board (Bappenas) Boediono
said on Wednesday the government was planning to reestablish a
system to effectively monitor World Bank funds.

He said the government was considering input from non-
governmental organizations and academics in devising the
mechanism.

Negotiations

Boediono added that the government and the World Bank were
still in negotiations.

"We're now making preparations (for the new mechanism). There
will be a marathon meeting at Bappenas in the coming days," he
told reporters after a Cabinet meeting.

He also said the delay would not have a negative impact on the
state budget cash flow.

"The state budget is relatively secure," Boediono said.

There has been growing concern over misuse of World Bank funds
by the bureaucracy. A World Bank internal report leaked to the
media said about 30 percent of bank loans was siphoned off by
government officials.

The bank pledged Indonesia $4.5 billion as part of a wider
bailout package arranged by the International Monetary Fund in
1997.

It increased the pledge to $5.5 billion last year, but so far
has yet to disburse half that amount.

The country's economy plunged by more than 13 percent last
year. The economic recession is expected to bottom out this year
following recent heartening economic indicators, including 0.18
percent deflation in March, a declining interest rate and an
improvement in the exchange rate of the rupiah to the dollar.

The IMF said on Tuesday in a report that Indonesia faces
"considerable risks" as it struggles to rebuild its battered
economy. However, it acknowledged the chance of slim growth this
year, contingent on the government following through on its
promised economic reform programs and continuing international
community financial support.

A World Bank official said in Washington, D.C., on Tuesday
that it would wait until a board meeting on May 18 before
considering the approval of two loans for Indonesia totaling $1.1
billion.

The bank economist, who declined to be named, said in a
telephone interview with Dow Jones that negotiations were about
to get underway in Jakarta this week on a proposed World Bank
loan of $500 million to bolster Indonesian social programs.

He also mentioned the $600 million loan, which he said was
pushed back until May or June to give the government more time to
devise an oversight mechanism to track funds and prevent
mismanagement.

The bank's $5.5 billion support package is aimed at ensuring
that Indonesia still has funds to provide social services to the
poor despite the impact of the recession.

The economist also confirmed that the bank was pressing the
government to devise a strategy to ensure funds were used for
their intended purposes.

"We are confident this measure is being put in place," the
bank economist said. "We remain confident that the projects are
going to go ahead as planned." (rei/prb)