Japan to offer $1b loan to RI with IMF

Japan to offer $1b loan to RI with IMF

TOKYO (Dow Jones): Japan has decided to extend a US$1 billion loan to Indonesia in cooperation with the International Monetary Fund (IMF) after severing cooperation with the World Bank, the Kyodo News service quoted government sources as saying Saturday.

Japan initially planned to extend the loan to Indonesia in cooperation with the World Bank, the sources said.

But the World Bank has suspended implementing loans to Indonesia citing allegations that Jakarta is misappropriating international aid.

"The World Bank's stance could fuel Indonesia's mistrust in international organizations," a Finance Ministry source said.

Tokyo's move could damage relations with the World Bank and could also have a negative impact on promoting financial assistance to other Asian countries, diplomatic sources said. The ministry source said cooperation with the World Bank on aid to other countries will be maintained.

Japan has set aside a total of $30 billion to help countries in the region recover from the Asian financial crisis under a plan launched by Finance Minister Kiichi Miyazawa.

Tokyo announced in February an aid package totaling $2.4 billion for Indonesia to help boost its worsening fiscal situation, assist the socially disadvantaged and reform its feeble financial system.

The World Bank last year froze a loan program worth $700 million to Indonesia that was to be implemented by the end of March, after an internal investigation indicated misuses of loans by the Indonesian government.

The World Bank is currently negotiating with Jakarta for the establishment of a system to effectively monitor the uses of loans.

The bank plans to decide on whether to lift the freeze at its board meeting in May.

The Japanese government, meanwhile, has criticized the investigation, saying the credibility of the internal probe is questionable.