WB grants Indonesia loan to improve banking sector

JAKARTA (JP): The World Bank has approved a technical assistance loan worth US$20 million to Indonesia to improve its banking sector.

The World Bank (WB) said in a statement yesterday that the loan was designed to help implement Indonesia's banking reforms and boost the country's macroeconomic stability.

"This project marks the initial component of a larger financial and policy assistance package to support a strengthened macroeconomic framework, implement financial -- particularly banking -- sector reforms and introduce measures to sharpen competitiveness and improve governance," the statement said.

The funds are part of the WB's overall $4.5 billion contribution to a $23 billion IMF-sponsored rescue package unveiled Oct. 31.

In addition to the WB's contribution, the IMF has pledged $10 billion, the Asian Development Bank $3.5 billion and Indonesia itself $5 billion over a three-year period.

To supplement the package, some $15 billion has been offered by the United States, Japan, Singapore, Malaysia, Hong Kong and Australia as a "second line" contingency fund.

The WB said the first installment was expected to help strengthen Indonesia's financial sector and reduce concern about the misallocation of financial resources and the sector's ability to withstand economic turbulence.

"The speed with which this project was prepared reflects the World Bank's capacity to respond quickly to client needs and address the immediate consequences of the turbulence buffeting the region," World Bank Indonesian country director Dennis de Tray said.

The WB said that to strengthen its financial sector, Indonesia needed to improve the efficiency and soundness of its banks, improve the central bank's supervision capacity and establish regulations and laws to further develop a modern market-oriented banking system.

The technical assistance loan has an amortization term of 15 years with a three year grace period, a standard interest rate for fixed-rate U.S. single currency loans and an expected implementation period of approximately two years. (aly)