WB delays additional $1 billion loan to RI

JAKARTA (JP): The World Bank has decided not to go ahead with plans to provide Indonesia with an additional US$1 billion loan in this fiscal year due to a narrowing of the country's budget deficit.

The Bank's country director for Indonesia Dennis de Tray said on Thursday that the improvement in the country's economy and currency had reduced the expected budget deficit in the 1998/1999 fiscal year to around 6 percent of gross domestic product compared to an earlier projection of 8.5 percent.

Speaking to a small group of journalists here, de Tray said that the additional loan would be released to the new government which is expected to be formed after next year's general election.

The loan was pledged last July under the auspices of an International Monetary Fund (IMF) package worth $6 billion put together to help meet the huge budget deficit expected in this fiscal year.

The Fund committed $1.3 billion to the package, with the remainder being pledged by the World Bank and other donor countries and organizations.

Donor countries grouped in the Consultative Group on Indonesia also pledged nearly $8 billion to finance the budget deficit.

The IMF has been the main financier of the country's three- year program of economic reform. The Fund in November, 1997 arranged bailout money for Indonesia totaling $43 billion. Of which, the Fund committed $10 billion, the World Bank $2 billion.

The Fund has so far disbursed around $9 billion of a total $11.3 billion commitment which it made to Indonesia (including $1.3 billion it pledged in July).

De Tray said that although the Bank planned to honor its $2 billion commitment, disbursement would depend on the government's progress toward implementing economic reforms and preventing funds in the social safety net program from being embezzled and misused.

The Bank has disbursed the first $600 million tranche of the $2 billion commitment.

De Tray said that discussions with the government on the release of a second tranche of $400 million were still ongoing.

"The money will be released once the government has introduced certain policies," he said, adding that there was a number of uncomfortable issues still to be dealt with.

He said that the Bank's money must not be used for political purposes.

However, he said he was optimistic that the problem would be solved in the near future, opening the way for the second tranche of the loan to be released.

He also said that the Bank was preparing a country assistance strategy (CAS) for Indonesia which would be presented to the Bank's board early in March 1999.

De Tray explained that the assistance strategy for Indonesia would focus on three objectives: reinforcing the social safety net program; ensuring short-term economic stabilization; and building the foundations for sustainable growth in the future.

He said that between $400 million and $500 million had been earmarked to fund economic reforms, $300 million to $600 million to fund the social safety net program, and $300 million to fund public sector reforms designed to stamp out corruption in the government and the bureaucracy.

Clean governance and corruption have been high on the minds of people at the World Bank in recent months. The Bank was recently shocked by reports that a significant percentage of loans given to Indonesia had been embezzled by government officials. (rei)