WB links future loans for Indonesia to corruption fight
JAKARTA (JP): The World Bank warned the government on Thursday to seriously tackle corruption, saying that progress in stamping out loan abuse was the key to the bank's future lending strategy for Indonesia.
World Bank country director Mark Baird said that Indonesia should focus less on the level of lending it received, and more on how well the money was being used.
"Indonesia should not borrow money if it is not prepared to take every step to see that it is used well," Baird said in his speech marking the signing of a US$448 million loan and grant package for Indonesia.
The loans are aimed at reducing poverty, covering development projects for the health, education and environment sectors, district economies, and overseas working women.
About one third of the loans will come from the concessional International Development Assistance (IDA) facility, which carries zero interest and is payable over a term of 35 years.
"The more confidence we have that the money is well spent, the more willing the government will be to borrow, and the more willing we will be to lend," Baird said at the press briefing that followed the signing ceremony.
"Corrupt projects are bad projects and they should be stopped dead in their tracks," he said.
Last April, the World Bank said it had canceled a $300 million loan tranche to Indonesia in order, many believed, to prevent further abuse of the bank's loan.
The tranche was part of a $600 million loan agreement signed in 1999 which was designed to shelter the poor from the effects of the economic crisis.
The World Bank noted in its review of the first loan tranche that the "slow pace of meaningful change in bureaucratic culture had rendered modest the impact of the aid on the poor."
Unconfirmed reports said that around 30 percent of the World Bank loans fell victim to corruption under the 30 year rule of former President Soeharto. That figure amounts to some $10 billion.
The World Bank has admitted that the abuse took place, but thus far has never named a figure.
Mark Baird said reports of the alleged abuse of World Bank funds were still under investigation by the bank.
However, he said progress was slow because of the difficulties faced in Indonesia when trying to obtain proof of corruption and collusion.
The World Bank has also lashed out on numerous occasions at Indonesia's poor legal system, which it said was affecting investment sentiment.
Baird said the current loan programs provided a better measure to prevent abuses.
"The projects being signed here today build on new ways to fight corruption." he said in his speech.
"Transparency needs to be balanced with proper accountability to ensure that corruption is weeded out and that the money will be well spent," he added.
Finance minister Boediono said the loans would incorporate a new monitoring system designed to prevent corruption. He did not elaborate.
Baird further said the World Bank planned to make more funds available under the IDA's facility for Indonesia so as to lower the country's debt burden.
Of the $448 million aid package, the Netherlands and Japan provided grants worth $9.7 million and $5.5 million respectively.
Earlier this year the World Bank decided to slash its loans to Indonesia by half from its average of $1.3 billion during the 1990s.
Baird said the World Bank might raise its loan level again should Indonesia need more, provided certain conditions had been met.
"If it (the government) decides that the World Bank is an appropriate source, we have the option to going to the high case (lending scenario)," he said.
One such condition had been the signing of a new Letter of Intent (LoI) to the International Monetary Fund (IMF).
Indonesia will seek fresh loans again from donor countries under the Consultative Group on Indonesia (CGI), in which the World Bank is one of the largest creditors.
The group's meeting is slated for November in Indonesia, and will discuss the amount needed to help plug the deficit in next year's state budget.(bkm)