Indonesia lending on hold due to Bank Bali: WB

Indonesia lending on hold due to Bank Bali: WB

COPENHAGEN (Agencies): The World Bank and the International
Monetary Fund will not extend any new loans to Indonesia until
the Bank Bali scandal has been cleared up, World Bank President
James Wolfensohn said on Monday.

"We and the Fund... are not doing any new lending until we can
get that clarified," Wolfensohn told a news conference on the
last day of a two-day visit in Denmark.

Before the East Timor crisis over the territory's vote for
independence from Indonesian rule, the World Bank`s and the IMF`s
top priority had been to investigate what was going on in the
Indonesian economy, he said.

"We have programs of approximately a billion (dollars) a year
from the (World) Bank to Indonesia, and they are all on hold
until we can get this Bank Bali scandal clarified," he was quoted
by Reuters as saying.

Bank Bali is at the center of a political storm after a murky
loan recovery deal was uncovered involving the bank, the
Indonesian Bank Restructuring Agency (IBRA), and a firm run by a
senior member of the ruling Golkar party.

Wolfensohn said the bank scandal was a reflection of concern
about corruption and how Indonesia's financial system was
operating.

"What we have insisted is, that before there is further
lending, that we clarify the situation of the Bank Bali scandal
and any others that are there," he said.

Meanwhile Indonesian Coordinating Minister for Economy and
Finance Ginandjar Kartasasmita said Monday turmoil in East Timor
will be just a "temporary setback" for

He added that he hoped President B.J. Habibie's request for a
United Nations presence in the province would help the country
move forward with International Monetary Fund and World Bank
relief programs.

In an interview with Dow Jones Newswires, Ginandjar also said
that authorities were determined to bring to justice culprits in
the Bank Bali scandal, a scandal he acknowledged would remain a
sticking point with the IMF and World Bank.

An investigation of PT Bank Bali by Standard Chartered Bank
PLC, which was seeking to buy a minority stake in the bank, found
that around $70 million had been transferred from its capital to
a private company controlled by a senior official of Indonesia's
ruling Golkar Party.

"We will go down to the bottom of it, and take necessary
action to rectify the problem and if necessary put to justice
those who were involved with criminal intentions," he said.

Ginandjar is Indonesia's highest ranking official at the
annual meeting of leaders at the Asia-Pacific Economic
Cooperation forum. In addition to shuttling between world leaders
at the meeting, Ginandjar said he informed IMF Deputy Managing
Director Stanley Fischer last night that President Habibie had
decided to request an international peacekeeping force in East
Timor.

"He seemed to be happy," Ginandjar said of Fischer. But he
said it was too early to say what role the decision would have in
getting the IMF aid program back on track.

ADB

The Asian Development Bank said Monday it will defer approval
of around $500 million of loans to Indonesia because of doubts
over President B.J. Habibie's government's ability to implement
economic reforms in the wake of the Bank Bali scandal.

Director of Programs Department for East Asia, Shoji
Nishimoto, told Dow Jones that new loans aimed at supporting
Indonesia's current fiscal budget were unlikely to be approved by
ADB's board by the year's end.

"We see difficulties in completing the procedures" for
approving the $500 million loan, he said, in a telephone
interview.

The ADB agreed in July, at an international donors gathering
in Paris, to lend around $500 million to Indonesia for the fiscal
year ending March 31, 2000, in addition to $1 billion in loans
approved for disbursement in calendar 1999.

"I think there is skepticism about the (Indonesian)
government's capability in the reform process, and we might have
to wait for this decision-making ability" to return, he said.

Indonesia's highest legislative body, the People's
Consultative Assembly, will meet in November to elect the
country's next president.

Nishimoto said deferring the loan approval is for "technical
and policy reasons," but added that the ADB is also waiting for
Indonesia to resolve the Bank Bali scandal.

Nishimoto confirmed that the ADB is considering suspending
$120 million in loans to Indonesia, part of the roughly $1
billion already approved for lending because of the Bank Bali
affair.

This comprises two tranches of $70 million and $50 million and
is separate from the $500 million of new loans.

"We have joined the IMF and World Bank in demanding a full and
speedy investigation" into the Bank Bali case, he said.

Since the fiscal year ends in March, it's still feasible that
the ADB will approve its new loan commitments to Indonesia within
its current budget, Nishimoto added.