WB retains 1% advanced fee on loans despite RI concern

JAKARTA (JP): The World Bank vice president for East Asia and the Pacific region, Jean-Michel Severino, said on Friday that the bank retains the one percent advance fee it charges to borrowers despite concern from Indonesia.

Severino said the bank had implemented such a fee since two years ago, when it decided to change the terms of its loans, which were applicable to all its borrowers, including Indonesia.

"This has been in implementation for two years. So I don't know why this issue suddenly surfaces as a problem," Severino told journalists at the bank's office here.

National Development Planning Board (Bappenas) deputy chairman Hidayat Syarief said earlier that the government was asking the World Bank to drop the one percent advance fee it has to pay once it signs a new "project loan" with the bank.

He contended that the advance fee was burdensome for the government as it was imposed on top of the usual commitment fee, which ranges between 0.25 and 0.75 percent, and the interest rate.

Severino again reiterated that the bank imposed the advance fee to all borrowers, not only Indonesia, and therefore, it had nothing to do with Indonesia's situation or country risk.

"It doesn't reflect any assessment of the country risk in Indonesia nor entail any particular relationship with Indonesia," he said.

He noted that the World Bank decided two years ago to change the terms of its loans and create a structure in which borrowers would pay a flat fee of 1 percent when they got the money and then pay 0.7 percent above the bank's borrowing cost, which is normally close to the London Inter-Bank Rates (LIBOR).

The charges the borrowers have to pay to the bank are still much lower than if they raised the money from the market by themselves, Severino said.

"Indonesia could not get this term if it were to borrow directly from the market. It would get LIBOR plus five, six or seven percent ... as most developing countries in the world normally get," he said.

For the bank, he said, the one percent flat fee and the 0.7 percent spread were not enough even to cover its operation. Most of the revenue the bank got, he said, was from the placement of its capital in the financial market.

"If we were to live with this 0.7 percent, we would lose our shorts and become a bankrupt institution," he said.

"So we are a very cheap institution. We don't even charge our borrowers the full cost of our administrative expenditures and the cost of provisioning, etc.," he said.

Nevertheless, the bank does not impose an advance fee for program loans which are used to finance government programs, including the social safety net.

Last week, the bank disbursed US$300 million of the blocked $600 million loan package destined for the country's social safety net program.

And earlier this week, the World Bank, which led meetings of Indonesia's donors grouped in the Consultative Group on Indonesia (CGI), pledged $1.5 billion in loans to help fill the government's 2000 budget gap.

Severino said support to Indonesia also came from the Asia- Europe Meeting (ASEM) funds, which had extended 20 grants totaling $7.5 million of its $42 million to Indonesia.

The money from the ASEM fund was used to provide education scholarships and grants to poor children as part of the national "Stay in School" program, to help set up the social monitoring and early response unit (SMERU), and to provide start-up funds for the Community Recovery Program, a non-governmental organization-led safety net for the most vulnerable, which channels assistance to grassroots organizations across the country. (rid)