KL says stands by Jakarta loan plan

KL says stands by Jakarta loan plan

KUALA LUMPUR (Reuters): Malaysian Prime Minister Mahathir Mohamad said on Saturday the country would go ahead with its plan to provide Indonesia with a US$250 million bridging loan despite deadly riots in Jakarta.

He also criticized the International Monetary Fund's rigorous aid program, which included withdrawing subsidies on Indonesians' fuel, electricity and transport.

"We give it (the loan) to a nation. Obviously, whoever succeeds in government will have obligations as much as they have obligations to the IMF and other international bodies," he told reporters when asked if Malaysia would go ahead with the loan.

"When countries borrow money, changes in governments does not mean that the loan is written off," Mahathir said at the Kuala Lumpur airport on arrival from a visit to Egypt and Sudan.

Indonesian media reports say as many as 300 people could have died in four days of looting and burning in Jakarta.

The rioters, bitter at IMF-mandated price rises for fuel and transport, have called for an end to the 32-year rule of President Soeharto.

The Indonesian government on Friday said it was cutting fuel prices and that electricity tariff for August will be reduced by 2 percent.

Malaysian officials said earlier this month the country was extending the bridging loan because the International Monetary Fund was slow to disburse its rescue package.

Mahathir has said previously that the loan is in addition to a $1 billion aid package extended last year.

Asked if the IMF was to be blamed for riots in Indonesia, Mahathir said the agency should not have insisted on pulling away subsidies to Indonesians drastically.

"I think the IMF can see on CNN also what happened when we pull subsidies too quickly on a people who depended on subsidies. Even if they want to pull back, we have to do it gradually," he said.

"When people become poorer and you pull back the subsidies then of course you are deliberately agitating the people, almost wanting them to revolt," said the premier, an outspoken critic of IMF aid programs.

The IMF on Friday defended its rigorous package of economic reforms for Indonesia.

An IMF spokeswoman said the reform program Indonesia adopted on April 10 remained "very much appropriate for Indonesia's economic situation, and for restoring confidence and bringing about a resumption of economic growth".

The U.S. State Department also backed IMF policies in Indonesia.

"We do not believe that the IMF program is the source of Indonesia's troubles," spokesman James Rubin said. "We continue to believe that a key component in restoring economic growth in Indonesia will be a vigorous program of economic reform as proposed by the IMF."