WB, bankers delay debt talks amid Indonesia storm

WB, bankers delay debt talks amid Indonesia storm

WASHINGTON (Reuters): Big World Bank loans and talks on commercial debt rescheduling became the latest casualties on Monday of Indonesia's political storm.

The World Bank, which had been due to debate $1.2 billion of new loans on Tuesday, postponed discussions until the situation became clearer in the strife-torn country, where 500 people died in four days of rioting last week.

Commercial bankers delayed a May 26 meeting aiming to work how to reschedule an $80 billion mountain of private sector debt.

"We'll probably meet sometime in early June," said a U.S. banker familiar with the talks. "We're at the disposal of the Indonesians."

Dennis de Tray, the World Bank's country director for Indonesia, said the international lending institution would proceed with its two loans "as soon as circumstances permit."

"Our long-term commitment to helping the Indonesian people is unwavering," Jakarta-based de Tray said in a statement released in Washington.

The World Bank money forms part of a $4.5 billion promised contribution to a $40 billion rescue package for Indonesia, the world's fourth most populous country and largest Muslim state.

But the bank, along with the International Monetary Fund and Western firms and institutions, pulled most of its foreign staff out of the Indonesian capital Jakarta as tension mounted, prompting doubt about whether any loans can go ahead.

"My sense is there is going to be a pause until things settle down before anybody goes ahead with non-humanitarian aid," U.S. Assistant Secretary of State Stanley Roth told a Senate committee. "We have not even begun to think through the IMF thing."

The IMF, which put the rescue deal together late last year, declined to say when it expected to send its experts back to Indonesia or whether plans to approve additional installments of its own $10 billion loan would be delayed as well.

The fund released a delayed $1 billion for Indonesia on May 4 and said at the time that the next reviews of its lending program would take place on June 4 and on July 6, provided Indonesia stuck to the terms of a program of reforms.

But de Tray said that the economic assumptions underpinning the rescue package would have to be reassessed to take account of the unrest.

"The IMF and other donors will clearly have to reassess the reform package, particularly the monetary and fiscal program and targets and the assumptions underlying them," he said, noting that assumptions on the budget and on the rupiah currency had been cast into doubt.

Indonesia's latest budget, agreed with the IMF last month, set an average 1998 rate of 6,000 rupiah to the dollar.

But the rupiah has slumped to around 12,500 to the dollar from 9,500 just under a week ago. It has fallen more than 80 percent against the dollar since Asia's currency crisis began.

The IMF-mandated reforms included opening up the Indonesian economy, strengthening ailing banks and lowering costly subsidies for food and fuel.

But monetary sources admit they were surprised Indonesia decided to cut subsidies drastically this month, pushing prices up sharply and helping to trigger the bloody riots, where protesters also urged long-serving President Soeharto to quit.

"The idea was phasing subsidies out gradually, raising the prices for fuel and electricity in steps, except for kerosene and diesel where price rises should be kept to a minimum to protect the poor," said one source. "They were not expected to do everything at once."

The IMF is watching the situation in Indonesia with concern but has not formulated any new view with regard to its rescue deal for the troubled nation, an IMF source said on Tuesday.

"I don't think we have any new view. Just like anybody else, we are watching the situation with concern. I don't think we have been able to develop any new view," the source told Reuters in a telephone interview.

"Of course, we constantly review the situation and we try to update and adjust the program in light of the evolving new situation. That certainly will continue, but exactly what we will do, I don't think anybody can say at this time."