WB cancels disbursement of US$300m loan to Indonesia

JAKARTA (JP): The World Bank has canceled the disbursement of US$300 million in social safety net loan to Indonesia due to the government's failure in meeting the loan conditions.

The loan, intended to help the country's poor in dealing with the devastating economic crisis, was supposed to have been disbursed before the end of last year.

"The World Bank management informed its board of directors that the social safety net adjustment loan closed on Dec. 31, 2000, without disbursing the second tranche," the bank said in a document published on its website on April 9.

The World Bank approved a $600 million loan in May, 1999, to help finance Indonesia's social safety net program. The bank disbursed the first tranche of $300 million in January, 2000 after the government successfully met all the first tranche release conditions.

But the bank said that the implementation of certain conditions for the second release "fell short of initial expectations."

"The reasons for the shortcomings are varied, but often resulted from the slow pace of meaningful change in institutions and bureaucratic culture," the document said.

The government launched the social safety net program in 1999 to mitigate the worst impact of the 1997 economic crisis on the poor. The program included heavily subsidized rice, education, health, and labor-intensive work. But often the program failed to reach the targeted group, and in some cases the aid was reportedly embezzled by corrupt officials.

The economic crisis has increased the number of the country's poor to 25 percent of the more than 200 million population at the end of 1998 from 11 percent in 1996. The figure fell slightly to 23 percent in 1999.

"Overall, the contribution of the safety net programs to mitigating the worst effects of the crisis on the poor was likely to have been modest, although some programs including scholarships and subsidized rice distribution have been shown to have had a positive impact," the bank document said.

"Following a joint review by the Government of Indonesia and the World Bank, it was agreed that the overall pace of progress in implementation would have made meeting all the requirements for the release of the second tranche, before the December 31 closing date, difficult," it added.

The bank said that efforts to improve social safety nets for the poor would be important contributions to the creation of a more effective long-term poverty reduction strategy.

The government has formed a new special antipoverty agency that will coordinate antipoverty programs in the country to achieve efficiency and minimize leakages.

The World Bank approved in February this year a new loan program for Indonesia worth $400 million a year for three years, down from an annual average of more than $1.3 billion previously.

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 the development of a broad-based poverty program.(rei)