WB retains 1% advanced fee on loans despite RI concern

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)