Indonesia may get more loans next year: World Bank
Indonesia may get more loans next year: World Bank
Dow Jones, Jakarta
The World Bank said on Thursday thanks to its performance in creating political stability and better economic policies, the prospects for Indonesia to get more loans from the Bank has improved.
However, the Bank said, in order to secure greater loans, Indonesia still needed to show a greater commitment to structural policy and justice sector reforms and to improve the investment climate, raise growth and reduce poverty more rapidly.
"In case reforms accelerate, and in line with the (Indonesian) Government's request, the Bank is prepared to raise lending to about US$1 billion per year from the fiscal year of 2002," the Bank said in its Progress Report of the Bank Group's Country Assistance Strategy (CAS) for Indonesia published on Thursday on its website.
The Bank's report sets minimum conditions for the "high-case" lending scenario, including a decline in the government's debt to below 90 percent of GDP this year and 80 percent of GDP next year.
The government has also to accelerate bank and corporate restructuring, including the sale of Bank Niaga.
The Bank stated it would continue to use the Letter of Intent (LoI) signed by the government and the International Monetary Fund (IMF) as the primary instrument to assess progress in the area of macroeconomic performance, bank and corporate restructuring and privatization.
Besides, the government has to set the medium-term direction of its rice policy which aims, among other things, to enhance farmers's productivity, prepare a broad-based poverty reduction strategy and reform the public procurement system.
Should Indonesia fail to meet the basic requirements, the Bank would apply the "base-case" lending scenario, under which the country will only get a $400 million annual loan from the Bank.
The Bank hinted that it might be difficult for Indonesia to meet all the requirements for the $1 billion annual loan.
"Looking ahead, the most likely outcome is that Indonesia will stay in the base case," the Bank said in a separate press release.
Following the Asian financial crisis of 1997-1998, the Bank cut its lending strategy for Indonesia to an average $400 million in loans per year -- down from the pre-crisis levels of $1.3 billion -- amid concerns that much of the money had been misused by former President Soeharto and his family and cronies.
Now, a large part of the bank's loans are on highly concessional terms funneled directly to the village level.
The Bank praised President Megawati Soekarnoputri for bringing political stability to the country, which is necessary to improve the economy.
In fact, under President Megawati, the Bank said, macroeconomic policies have been improved, the rupiah has strengthened, inflation is on the decline and is expected to reach single digits by the end of 2002. Still, it said, these improvements have been insufficient to lure back private investors.
It also praised the decentralization program, which it said "went better than most observers had feared".
"Power was devolved without a significant breakdown in service delivery and 2 million civil servants were successfully reassigned to regional governments," it said.
However, it said, three challenges lie ahead: development of an unambiguous legal framework, an equitable fiscal transfer framework and accountable governance structure.
The poverty rate continued to decline approaching pre-crisis lows, but may be rising again since the poor are particularly vulnerable to the increase in rice prices.
Minimum Conditions in High Case Lending Scenario
A: Improve macroeconomic stability
1. Government debt below 100% of GDP (2001), 90% (2002), 809% (2003)
2. Base money growth program consistent with inflation below 10%
3. Primary (non-interest) surplus of at least 1.5% of GDP
B. Accelerate bank and corporate restructuring
1. Agreement on corporate restructuring principles
2. IBRA cash recovery Rp 27 trillion during 2001
3. Complete privatization of BCA and Bank Niaga
C. Set medium-term direction of rice policy
1. Establish and operationalize interdepartmental working group on rice policy.
2. Adopt agreed strategy for future rice policy, including price and trade policy, the role of BULOG, and productivity enhancing measures for farmers.
D. Strengthen public procurement and financial management
1. Establish and operationalize two high-level committees to guide reform of procurement and financial management system.
2. Adopt and publish satisfactory action plan to reform the organizational structure and legal framework for procurement.
3. Submit acceptable laws on state finance, treasury and audit to the legislature.
E. Prepare broad-based poverty reduction strategy
1. Draft agenda on poverty reduction strategy to facilitate consultations.
2. Initiate multi-stakeholders consultations.