WB resumes loans to help Indonesia reduce poverty

WB resumes loans to help Indonesia reduce poverty

WASHINGTON (Reuters): The World Bank on Tuesday resumed
lending to Indonesia with a US$225 million loan to reduce
poverty.

The announcement was a boost for the country's new President,
B.J. Habibie, and his economic team. It was also a tangible sign
that the international community was warming to the new
government, more quickly than many had thought possible.

Dennis de Tray, the World Bank's country director for
Indonesia, told reporters in Washington that the $225 million
rural development loan was critically needed in Indonesia, where
the bank has estimated the number of poor could swell by 10
million in the short-term.

But de Tray said disbursement of additional World Bank money
-- including a $1 billion in structural adjustment loan to help
reform the battered economy -- remained on hold, and would
require further review by bank and International Monetary Fund
staff and management.

"The conditions have changed dramatically," de Tray said. "We
have to go back and reassess. We have to put together a
consistent framework that we're comfortable with and the
government can live with before we take the next step."

But he told reporters: "The bank and the rest of the donor
community is looking for ways for resuming assistance to the
people of Indonesia in a difficult political and economic
environment."

Earlier on Tuesday, a top IMF official said the fund may also
be getting ready to resume disbursements put on hold.

"Now that the political transition has taken place, there is a
prospect of a return to the IMF program taking place reasonably
soon," Stanley Fischer, first deputy managing director of the
IMF, told a symposium in Tokyo.

The $225 million poverty reduction loan was part of a much
larger World Bank aid package, put on hold on May 18 amid social
unrest leading to the resignation of longtime President Soeharto
and his replacement by Habibie.

The World Bank said Tuesday's loan would benefit seven to 10
million people living in the eastern island districts of
Indonesia, the world's fourth most populous country and largest
Moslem state, which had suffered the worst effects of the El Nio
weather phenomenon.

De Tray said a joint World Bank-IMF team would assess the
economic situation in Indonesia next week and report its findings
back to management. The assessment should be completed by June
12, de Tray said. "We'll be having a senior management meeting
then to determine what comes next," he said.

De Tray said Indonesia's new government had made good progress
on structural reforms. "They are in fact ahead of the game at
this stage."

But he added: "The main uncertainty for us right now is the
macroeconomic framework."

Weeks of social unrest and political upheaval have dragged the
crippled economy further into depression.

The Indonesian government says unemployment this year will hit
15.4 million -- 17.1 percent of Indonesia's 90 million workforce.

It expects the economy to shrink 10.1 percent in 1998, with
inflation rising to between 80 and 85 percent and even breaching
100 percent if Indonesia sees a repeat of the riots that ravaged
Jakarta in May and left 500 people dead.

The IMF says the economic forecasts underpinning its reform
program with Jakarta will have to be redone. "The situation is
extremely difficult because of the extraordinary devaluation of
the rupiah," Fischer said.

The World Bank warns that medicines are in short supply or
prohibitively expensive. So, too, is hospital equipment, such as
syringes.

Making things worse, a withering drought last year hit
agricultural output, forcing costly imports of rice, the staple
of the country's 200 million people, and other essentials.
The social unrest and political upheaval have made the situation
far more difficult, de Tray said.

"The political crisis that came to a head when Soeharto
resigned, it just has exacerbated an already extraordinarily
difficult set of conditions," de Tray said.

"We are extremely committed to trying to help cushion the
impact of this continuing decline in the economy of Indonesia,
and that's what this (poverty loan) program is about."

The World Bank said the loan would finance a project worth
$273 million, with the Indonesian government contributing $47
million to the cost.