WB calls on new govt to maintain tight money policy

JAKARTA (JP): World Bank country director for Indonesia Mark Baird urged the country's upcoming new government to maintain the macroeconomic stability achieved during the past six months as a top priority.

Baird said this means Bank Indonesia must maintain a tight monetary policy and the government must ensure the availability of basic commodities.

"Stability is not just a macroeconomic phenomenon, it has a lot to do with the supply of basic commodities," he told a business luncheon.

Baird pointed out that the low inflation during the past nine months was largely contributed by the improvement in agricultural production and food supply.

Inflation in September was a negative 0.68 percent, the seventh consecutive month of falling prices, sending the annual inflation level to 1.25 percent.

The Central Bureau of Statistics had attributed the low inflation primarily to lower food commodity prices due to an abundant supply.

The country was hit by hyperinflation of more than 77 percent last year as the economic crisis worsened and various riots disrupted distribution systems.

Bank Indonesia is now projecting a full year's inflation of around 2 percent on the condition that domestic political stability improves after the Oct. 20 presidential election.

Baird also set four other priorities for the next administration to help the country recover from its economic crisis.

The priorities include the need to implement an effective social safety net program; accelerating the bank and corporate restructuring program; designing a state budget that balances fiscal stimulus and fiscal sustainability; and civil service and judicial reform.

"We will continue to support the safety net program," Baird said, referring to the Bank-sponsored multibillion dollar program designed to help the poor to survive the economic crisis.

Baird expressed dissatisfaction over the snail's pace of the country's bank and corporate restructuring program, and urged the new government to push forward aggressively.

"Work on restructuring and recapitalizing state banks and taken over (nationalized) banks has moved even slower than in private banks," he said.

"This must move ... much more aggressively now but with a clear game plan," he added.

Baird said that corporate restructuring has moved even much slower than bank restructuring, adding that there was a need to strengthen the Jakarta Initiative Task Force to become more effective in facilitating the corporate debt restructuring process.

The government has closed down 66 banks, nationalized 12 banks and sponsored the privatization of nine private banks as part of the bank restructuring program, which is estimated to cost up to Rp 550 trillion.

Of the country's seven state banks, four banks have been merged. The government had initially planned to complete the recapitalization of state banks by the end of the March 2,000.

Bank restructuring is a key factor in recovering the economy as the country's ailing banks have halted lending to the real (non-financial) sector.

Bank Bali

Baird admitted that the bank restructuring program had been slowed down by the high profile Bank Bali scandal.

He said that the Bank Bali scandal was "a clear-cut example of high level corruption."

Baird reiterated that the Bank and other international donors would not resume aid disbursement to the country until the government reached a satisfactory resolution of the scandal including a disclosure of the full PricewaterhouseCoopers (PwC) investigation report.

The government has declined to release the PwC investigation report on grounds that disclosing information on bank accounts would violate the country's banking secrecy codes.

But the government announced on Tuesday that the Supreme Court would soon issue a legal opinion on whether to release the PwC audit report, which contains information on the personal bank accounts of certain people.

Baird cautiously welcomed the announcement, saying: "I'm looking forward to the Supreme Court's ruling."

"We want to see disclosure of the audit," he said.

"If there are aspects of this report that should not be released, that can be discussed. But quite frankly, without disclosure, it's very hard for us or anybody, including the public, to judge whether the process is proceeding in a correct way."

Baird said that the disbursement of some US$4.7 billion in loans had been postponed for the 1999/2000 fiscal year ending March 2000, by the World Bank, the International Monetary Fund (IMF), the Asian Development Bank and Japan.

Some $1.3 billion is from the World Bank and is mainly planned for budgetary support.

The Bank Bali scandal centers around the "illegal" transfer of US$80 million from the bank to a private firm linked to the inner circle of President B.J. Habibie.

There have been allegations that the money was to be used for political purposes.

The police are currently investigating the case.

World Bank President James Wolfensohn also reiterated demands Tuesday that the Indonesian government make public a report on the Bank Bali scandal before a moratorium on financial aid to the Asian country is lifted.

"Before we can take things further with Indonesia, there needs to be a public exposure of the auditors' report on Bank Bali.

That is the position, it's very clear cut," Wolfensohn told a media briefing in Pretoria on Tuesday at the end of a three-day visit to South Africa.

The World Bank chief gave no indication that the government of B.J. Habibie was prepared to honor this demand.

"But I sincerely hope they do," he was quoted by Dowjones as saying.

PWC issued a 123-page report on the scandal last month, but Indonesian authorities have only made public a 36-page summary which leaves out the identities of those involved.(rei)