WB approves new loan program for Indonesia

WB approves new loan program for Indonesia

WASHINGTON (Agencies): The World Bank approved a new loan
program for Indonesia on Tuesday worth $400 million a year for
three years and said future aid levels could be higher if
significant progress was made on economic and social reforms.

The bank said the lending program could be increased to as
much as $1 billion a year if Indonesia demonstrated progress in
such areas as macroeconomic management, bank and corporate
restructuring, and development of a broad-based poverty program.

The new commitment is much lower than the $1.3 billion average
yearly funding pledged by the World Bank in the mid-1990s.

However, the World Bank will lend the funds under more
generous terms than previously, reflecting a desire to move from
a "crisis" approach to a renewed emphasis on poverty alleviation,
the bank said in a statement.

About one third of the total lending under the new program
will be from the bank's concessional lending arm - the
International Development Association.

IDA loans, which are interest free and have terms of up to 40
years, would "ensure a continuing flow of finance for development
and poverty reduction without increasing Indonesia's debt-service
demands in the near term," the statement said.

"The bank will be there to help Indonesia as a long-term
development partner," Managing Director Sven Sandstrom said in a
statement. "Improved governance and progress on the reform
program will be key determinants of future levels of assistance
from the World Bank," he added.

The bank congratulated Indonesian authorities on an
"encouraging turnaround" of the economy after a severe economic
crisis. The bank said it recognized the complexity of the
situation as Indonesia underwent a political transition toward a
more open, democratic society.

Regional-autonomy laws that took effect on Jan. 1 aim to give
the country's 30 provinces and more than 300 districts a greater
say in running their own affairs.

The World Bank said recently that it was not happy with the
government's progress on decentralization and feared that newly
empowered districts and provinces were not ready to deal with
financial matters.

Problems with decentralization constituted one reason that the
International Monetary Fund stalled on $400 million in aid in
December.

"By moving decisively on the key economic and judicial
reforms, Indonesia can help restore investor confidence and
attract the private investment necessary for it to regain its
footing as one of the emerging economies of Asia," Jemal-ud-din
Kassum, the bank's vice president for East Asia and the Pacific,
said.

Indonesia, still suffering badly from that crisis, is one of
the bank's biggest debtors, owing $12.5 billion. The country's
total foreign debt stood at about $140 billion at the end of
September.

"Improved governance and progress on the reform program will
be key determinants of future levels of assistance from the World
Bank," Kassum added.

Indonesia's foreign public debt is already a huge $70 billion,
and the government relies on loans from the World Bank and
bilateral donor countries to balance its budget.