Corruption threatens continued aid: WB

JAKARTA (JP): The World Bank warned on Thursday that aid money for social safety net programs in Indonesia could be discontinued if its intended purposes are hindered by corrupt practices.

The government's ability to ensure an unimpeded flow of rice and other forms of assistance to those worst hit by the year-long economic crisis is a prerequisite for additional international assistance to Indonesia, a senior executive of the Washington- based bank said.

Deputy vice president for East Asia and the Pacific Julian Schweitzer told a news conference that credible management of the social safety net program for the poor was vital and would critically affect the World Bank's assistance to the country.

"International donors will be watching very carefully to see how things go in the delivery of food, medicines and other essentials to the needy. It's a major test of sincerity," he added.

At the meeting, Schweitzer announced the Bank's agreement with Indonesia to help the government design an anti-corruption strategy.

The World Bank has of late come under sharp criticisms from analysts and politicians for its alleged condoning of corruption within the implementation of its projects in Indonesia.

The criticisms have increased especially after a World Bank internal memorandum, which was leaked to The Wall Street Journal last month, confirmed that Indonesian officials had siphoned off at least 20 percent of the Bank's money lent to the country.

The World Bank and other international donor institutions, including the IMF are committed to providing Indonesia with US$14 billion in bailout money to finance the country's social safety net program to help the poor survive the worst economic crisis in three decades. Forecasts have suggested that at least half of the country's 200 million population will be living below the poverty line by the end of this year.

Priority

The bank is currently helping President B.J. Habibie's administration design an anti-corruption strategy with an immediate focus on protecting funds for the social safety net program from being misused.

"Our top priority in helping the government with its strategy is to do everything we can to protect the poor from corruption," Schweitzer said.

"Social safety net programs must be allowed to work swiftly and cleanly. This is the key test of Indonesia's ability to make its overall campaign work," he added.

The bank's country director Dennis de Tray said at the media conference that multilateral institutions would provide funding to support Habibie's anti-corruption measures.

He said that the size of the funds had yet to be discussed with the government but it would be part of the bank's additional $2 billion commitment to the country in the current fiscal year.

The bank's agreement with the government follows last week's World Bank-led international mission to Jakarta to seek advice from political, business and civil society leaders on measures needed to combat corruption, collusion, and nepotism.

"The World Bank has strongly endorsed the government's commitment to good governance, calling it essential for continued international support and a crucial step towards eventual economic recovery," De Tray said.

The economic crisis has slashed the government's ability to finance its budget due to huge subsidy spendings which has been estimated will cause a budget deficit equivalent to 8.5 percent of gross domestic product (GDP) in the current fiscal year.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita has said that although the deficit was expected to decline in the next fiscal year, the country would continue to need a significant amount of international support.

The Paris Club creditor nations agreed on Wednesday to reschedule $4.2 billion of the country's sovereign debt which falls due in the 1998/1999 and 1999/2000 fiscal years over a period of between 11 and 20 years. The measure will considerably ease the burden on the state budget.

The government is also seeking international support to ease the burden of servicing the commercial debt which it owes to international banks.

Analysts here also see the issue of good governance as critical to the success of the banking reform program, in which the government sponsored Indonesian Bank Restructuring Agency (IBRA) is expected to manage large assets handed over by the country's major business groups in lieu of their banks' outstanding debts to the government. (rei)