Thu, 04 Dec 2003

WB to boost lending to Indonesia

Dadan Wijaksana, The Jakarta Post, Jakarta

The World Bank announced on Wednesday its commitment to increase loans to the country in the next four years to help lift millions of Indonesians out of poverty, provided the government makes greater efforts in its anticorruption and good governance drives.

The bank, as stated in its country assistance report for July 2003 to June 2007, would provide US$450 million to $850 million in loans per year -- higher than an average of some $400 million in loans over the past three years.

Bank country director for Indonesia Andrew Steer told a media briefing on Tuesday that the forthcoming loans were aimed at financing various health programs and projects to help alleviate poverty, as well as to build power plants and other infrastructure projects.

Despite the higher commitment, the loans remain much lower than the average of about $1.3 billion in loans disbursed annually in the mid-1990s.

However, in the event of the country accelerating its key areas of reform -- improving the investment climate, strengthening the public service sector and improving governance -- the bank would be prepared to provide even higher funding for Indonesia. In that event, the report said, Indonesia would be eligible to obtain annual lending of up to $1.4 billion, in what the bank referred to as the "high-case scenario."

Consequently, Indonesia has to strenuously tackle corruption -- both through taking action and the regulatory framework -- and improve the economy, banking and legal system.

The bank acknowledged that rampant corruption and poor governance were the underlying reasons for low investment and weak service supervision, which has, in turn, prevented progress in reducing poverty.

Currently, investment remains scarce due to failure to address those problems, depriving the economy of its engine and putting a lid on higher economic growth -- the perfect recipe for reducing poverty.

Earlier, the bank identified the need for investment in infrastructure projects as a priority, to help stimulate the economy. Currently, Indonesia is ranked among the poorest in the region in term of infrastructure networks.

While income poverty here has fallen from 27 percent of the population in 1999 to 16 percent today, no fewer than 110 million Indonesians currently live on less than $2 per day and remain vulnerable to slipping back into poverty. The level of poverty could be cut to 10 percent by 2007 only if significant progress were made in improving the investment climate and the delivery of public services here, it added.

"The high hopes that the Reformasi movement would break the hold of vested interests and the corruption, collusion and nepotism that characterized the later years of the Soeharto era have not been realized," the report said.

"Corruption poses a special problem for Indonesia, and the bank aims to integrate governance and corruption issues through the entire Indonesia program, shaping how projects are selected, designed, implemented and monitored."

World Bank 2003 to 2007 lending allocations:

1. Community-Driven Development: Around 25 percent of total lending (around $200 million) would be allocated for this program

2. Local Services Platform: Around 40 percent of lending would be allocated to help create accountability in local government

3. Public Utility Platform: Around 15 percent of lending would help support investment in good governance and efficiency in water supply and energy

4. National Lending Platform: Around 20 percent of lending would be allocated to address central problems