Indonesia secures special IDA loans from World Bank

JAKARTA (JP): The World Bank has granted Indonesia greater access to its International Development Association (IDA) loans, which carry almost zero percent interest rates, following progress on the country's economic reforms and its commitment to fight corruption.

World Bank president James Wolfensohn said the bank may extend and expand the IDA facility on the back of Indonesia's continued reforms progress.

"Given the government of Indonesia's post-crisis debt burden, the World Bank has granted Indonesia temporary access to highly concessional IDA resources, which have zero interest and a 35- year repayment period," Wolfensohn said after a meeting on Thursday in Washington with President Megawati Soekarnoputri, who is on a nine-day visit to the United States.

Meanwhile, State Secretary Bambang Kesowo said the International Monetary Fund (IMF) had agreed to Indonesia's request for lighter debt repayment terms, and joint efforts to reduce the country's debt burden.

President Megawati Soekarnoputri made the request in a meeting with IMF Managing Director Horst Koehler, Bambang said.

She further asked the IMF not to tighten conditions over Indonesia's debt repayments, to which the IMF also agreed, he said.

The World Bank's IDA facility is normally reserved for extremely poor countries whose economies are too weak for loans carrying commercial terms.

Even though Indonesia does not rank among them, its huge foreign debts pose a constant threat to its budget's survivability.

Last month, the World Bank extended some US$440 million in new loans, of which over one-third was based on IDA terms.

Wolfensohn said the World Bank planned to increase lending on these concessional terms.

However, the bank tightly links its loan program to progress made in battling corruption and reforming the economy.

A lack of effort in these areas has deferred the inflow of foreign capital, and thus undermined Indonesia's debt repayment capacity.

"Indonesia's weak legal and judicial system is harmful to the investment climate, impeding efficient bank and corporate restructuring," the World Bank said in a statement.

Thus far, the absence of concrete results in legal reforms has been overshadowed by the recent progress on the economic front.

"I am greatly encouraged by how quickly President Megawati and her economic team reacted to stabilize the economy through negotiation of the Letter of Intent (LoI)," he said referring to a lending agreement with the IMF.

The LoI contains a set of economic reform targets, which Indonesia must comply with to obtain financial aid from the IMF.

Megawati's economic team secured a new LoI after just one month in office, ending an eight-month deadlock over talks on the LoI with the fund.

The IMF's stance toward Indonesia has become a benchmark for the World Bank and other financial institutions in dealing with the country.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said Indonesia needed the IDA facility, especially after last week's terrorist attacks in the States had stoked fears of a global recession. (dja/bkm)