World Bank criteria for more loans tough: Economists

Berni K. Moestafa, The Jakarta Post, Jakarta

The prospect for Indonesia to tap the World Bank's US$1 billion high-case lending scenario next year was dim, economists said, citing tough reforms preconditions by the Bank.

Despite improved macroeconomic stability over the past year, they said, Indonesia must show it was progressing on structural reforms as well.

"The high-case lending scenario is problematic," said Chatib Basri of the University of Indonesia's Institute for Economic and Social Research (LPEM) over the weekend.

Meager advancements on structural reforms could outweigh the plus points earned from an improved macroeconomy, he warned.

The World Bank last week praised the country's political stability and better economic policies, for which the Bank might upgrade its Country Assistance Strategy (CAS) on Indonesia next year, to a high-case lending scenario from the current base-case scenario. The move would raise the Bank's loan availability to $1 billion annually from about $400 million since the 1997-1998 economic crisis.

But the World Bank told Indonesia to first catch up on several reforms targets. It called for a greater commitment to structural policy and justice sector reforms, an improvement in the investment climate, a higher growth, and to reduce poverty more rapidly.

Some of the foot dragging the Bank took issue with, concerned reforms targets in Indonesia's Letter of Intent (LoI) to the International Monetary Fund (IMF).

The World Bank has said that compliance with the LoI continued to form the bases for Indonesia's annual CAS evaluation.

Some of the unfinished LoI targets are the planned anti- corruption committee, and the privatization and divestment of state assets.

"It seems that among the government's greatest difficulties is in privatization or selling state assets," Chatib said.

He was referring to the delay in the sale of Bank Niaga due to resistance from the House of Representatives. That followed a similar experience in the sale of Bank Central Asia (BCA) last March, after about two years in efforts.

Opposition from state enterprises' labors, managements and the House have also forced the government to cut back this year's privatization target to Rp 3.9 trillion (about $433 million) from Rp 6.5 trillion.

And as stock investors retreat from their buying spree in the first six months of the year, chances were dim for selling more state companies's shares through the stock market.

Unlike the IMF, however, the World Bank takes a greater interest on structural reforms with attention lately also resting on Indonesia's weak judiciary and corruption issues.

Breakthroughs are nonexistent where legal reform is concerned, as Indonesian courts continue to produce questionable verdicts amid reports of corruption infesting the judiciary.

Corruption at state institution also faces few resistance with the planned procurement and financial management system to fight the malady developing behind schedule.

"Looking ahead, the most likely outcome is that Indonesia will stay in the base-case," the World Bank said in a statement last week.

Economist Umar Juoro of the Center for Information and Development Studies (CIDES) agreed with the prognosis, calling the high-case lending scenario a "tough goal for next year".

He said structural reforms took several years before they show concrete results, although the Bank was likely demanding only policy progress for now.

According to Umar, the country should also improve its ability to absorb a higher amount of loans since many World Bank projects cannot work without local participation.

Chatib added that Indonesia did not necessarily need more loans. However receiving the World Bank's high-case loans would bolster the country's standing before foreign investors, he said.

He added that the World Banks' stick and carrot approach was crucial in getting reforms going. "I think this kind of pressure is good, otherwise the government will hardly move on reforms."