WB approves US$422 million in loans for Indonesia

WB approves US$422 million in loans for Indonesia

WASHINGTON (Reuters): The World Bank said on Tuesday it had
approved new loans of US$422 million for Indonesia and said it
could increase lending to as much as $1 billion annually if an
impasse with the IMF were resolved.

The larger of the two loans, the Kecamatan development
project, totals $320.2 million and is aimed at reducing poverty
in 15,000 poor villages across the country, potentially helping
up to 30 million rural Indonesians.

The second loan, for $102.57 million, will help bring improved
health services to poor families.

The loans take World Bank lending to Indonesia for the current
fiscal year, which ends this month, to $492.7 million -- just
above the worst case scenario the bank envisaged when it unveiled
its lending strategy for Indonesia in February.

But the Washington-based lender offered some hope that it
might lend more to Indonesia in the coming fiscal year.

The bank said in a statement that reaching an agreement with
the International Monetary Fund, which froze lending to Indonesia
in December, could help it win more cash from the World Bank in
the coming fiscal year.

The World Bank can lend up to $1 billion annually to
Indonesia, but only if the country makes adequate economic
improvements and shows progress on reforming its economy.

The bank said in its statement that advances on macroeconomic
stability, acceleration of structural reforms strengthening of
public procurement and financial management, and progress on
preparing a broad-based poverty strategy could make that higher
lending scenario a reality.

"The door is open for the possible transition to 'high case'
status for Indonesia," World Bank Vice President for East Asia
and the Pacific Jemal-ud-din Kassum said.

"The bank is prepared to move to a higher lending case, if
policy performance improves. Completion of the current IMF review
would be an important step in fulfilling the conditions for 'high
case,'" Kassum added.

Hopes that the impasse with the IMF could be resolved soon
were given a boost on Tuesday when the fund said it would resume
talks about restarting its $5 billion loan program with Indonesia
if the government agreed to delay a debate on controversial
central bank law revisions.

Reaching accord with the IMF is seen as vital to renew
investor confidence in Indonesia and also to pave the way for
rescheduling billions of dollars of debt with the Paris Club.

Indonesia's parliament earlier on Tuesday urged the government
to stall the central bank law debate by six months to help
improve ties with the IMF.

"I believe the fund would be willing to send a mission soon if
the government wishes to follow the comprehensive suggestion by
the parliament," IMF senior Jakarta representative John Dodsworth
told Reuters.

Dodsworth said the mission -- which would pave the way for a
fresh $400 million loan -- was solely contingent on the revised
laws which the IMF fears would undermine the central bank's hard-
won independence.

Indonesia has already cleared two hurdles for securing fresh
IMF loans: revising its 2001 state budget and dropping a much
criticized plan to issue asset-backed bonds.

The biggest sticking point on the Bank Indonesia law reforms
is Article 75 which stipulates the whole bank board resign once
the new laws take effect. An independent report recently said the
clause was a "serious mistake."