WB disburses US$300m loan to Indonesia

JAKARTA (JP): The World Bank disbursed on Friday US$300 million of the blocked $600 million loan package destined for the country's social safety net program.

The bank said in a statement the loan package was originally approved on May 18 last year, but was delayed due to technical issues and the emergence of the high-profile multimillion dollar Bank Bali scandal.

"The release of these funds had been stalled, but a new agreement with the International Monetary Fund (IMF) and progress on the resolution of the Bank Bali case have enabled this disbursement to proceed," the World Bank said.

The government and Bank Indonesia signed a new Letter of Intent with the IMF last week that resumed the disbursement of a multibillion dollar loan package which was suspended in September following the disclosure of the Bank Bali scandal, which tainted then president B.J. Habibie's administration.

World Bank country director Mark Baird said the disbursement of the bank's program loans for Indonesia was "a clear signal of international support for the government as it puts in place its new economic recovery program".

Baird said the World Bank needed to help finance Indonesia's social safety net programs in a bid to reduce the number of impoverished people in the country, which increased precipitously during the economic crisis.

"This release does not mean things are perfect in these programs -- we do not expect problems to disappear overnight," he said. "Implementation so that the programs reach the poor effectively is our focus now and will be key to our continued support."

According to World Bank data, poverty in Indonesia fell below the 20 percent level to 19.34 percent as of August 1999, compared to its peak of 20.47 percent in February of the same year.

The bank, however, cautioned that it would take more than five years for the poverty rate to return to its precrisis level of about 11 percent.

Nevertheless, Baird said the World Bank, along with other donors, was committed to helping Indonesia reduce poverty through long-term programs and by maintaining the momentum of the economic recovery.

"We will continue to work with the rest of the donor community in the months ahead to support the government's objectives of economic recovery, good governance and social protection, which includes the transition from social safety nets to long-term poverty reduction programs," Baird said.

In its report prepared for the Consultative Group on Indonesia meeting here next week, the World Bank said Indonesia would need between $4.2 billion and $4.7 billion in new loans to help finance its budget deficit in 2000.

The government presented its 2000 draft budget to the House of Representatives last week, in which it foresaw a deficit of up to 5 percent of the country's gross domestic product (GDP).

The World Bank said in its report that the government's debt had increased from 23 percent of GDP before the crisis in March 1997 to about 90 percent of GDP currently.

The report, however, praised the country for having a popular government with strong legitimacy on top of stable macroeconomic indicators and strong oil prices.

It added that inflation had been greatly slowed, the rupiah was within a narrow range, interest rates had fallen to precrisis levels and the country's risk continued to decline.

The report also said sustainable economic recovery in the country would be difficult, but not impossible.

"The economy is recovering gradually and tentatively through its own internal recuperative powers. For this to be sustained, will be difficult but not impossible."

Above all, peace and the assurance of political stability were most important, as foreign investors' confidence would not return without them, it said. (udi)