WB mulls loans for Indonesia and Malaysia

WB mulls loans for Indonesia and Malaysia

BANGKOK (Reuters): The World Bank is preparing a package of structural adjustment loans for Indonesia under a US$1 billion pledge made in March last year when the country was struck hard by crisis.

A decision on that would hinge on substantial domestic financial and political reforms, according to Jean-Michel Severino, the bank's vice president for the East Asia region.

He told Reuters in an interview on Tuesday:

"We are preparing a package of structural adjustment loans that might be approved by the board in a couple of months time."

"At the same time we are focusing on (Indonesian) financial and corporate restructuring, management of social problems and deepening of the social safety net, and finally the governance and corruption issues in the country," he added.

"We have to have enough confidence that substantial reforms and progress will be made on these fronts before we present this (loans) to the board," Severino said.

"Most of this money will be disbursed right after the board meeting, which might be in March...provided we have full agreement with the government on enough reforms in the key areas," he added. "As always, everything hinges on reforms.

Indonesia is due to hold national elections on June 7 even as it grapples with severe social and economic problems facing its huge, impoverished population.

Severino also said that the World Bank was in talks with Malaysia on new loans to help with a fiscal stimulus for the country, but a few more weeks of talks with the government were needed for a final decision on the funding.

"We are in active discussions with them. Last year, around May or June, we lent them $300 million. We are now discussing lending to help them deal with the social impacts of the economic crisis."

Additional funding to Malaysia would depend on complete agreement with Malaysia on policy directions.

"We have not reached that point yet. It will take us a few more weeks, at which point we can really say yes or no. It can be an important amount of money," Severino added.

"The amount is not something I can tell you about as it is being discussed. It won't be for (funding) balance of payments, but to fund budget deficit...for fiscal stimulus," he said.

Severino said crisis-hit Asian economies needed to be very careful after the global financial ripples created by Brazil's recent real devaluation and float.

"All emerging economies must be extremely cautious at this stage. It is very important...we are in a very risky environment and the situation can deteriorate," he added.

The official said battered Thailand and South Korea, which are seen to be on the path of economic recovery, needed to be extra careful about reforms at this stage.

"...reforms have to be maintained and even deepened so that at least domestic and long-term investors keep confidence in the countries...that they are moving in the right direction."

Severino said the Asian crisis was still lingering.

"It is still there. We should not be focusing only on economic indicators, which have been stabilizing in past months. The underlying problems of crisis are still there.

"There is still a huge amount of private debt, corporate restructuring and bank restructuring is not over, and it will still take much more time to get around these problems," he said.

He predicted that barring external shocks, recession-hit Asian countries could see some growth by end-1999.

"It will take at least a couple more...years to fully reach corporate and financial restructuring that can allow us to say we are beyond the crisis," he said.