World Bank highly unlikely to forgive Indonesian debt

World Bank highly unlikely to forgive Indonesian debt

NEW YORK (Dow Jones): The World Bank is highly unlikely to
forgive Indonesia's debt, experts said, despite being urged to do
so by a former consultant for the U.S. Agency for International
Development.

Jeffrey Winters, an expert on Indonesia now a professor at
Northwestern University, said Monday that the country should
exploit current pressures on the World Bank to get it to cancel
up to US$10 billion in loans.

His calls follow the publication of an internal document
alleging that bank officials were aware that 20 percent to 30
percent of the funds disbursed to the country were being siphoned
off through corruption.

Due to the Columbus Day holiday in the U.S., World Bank
officials were not available for comment Monday. However, a
former World Bank official familiar with the region was highly
doubtful that such a move could occur.

"It would create extraordinary precedents," said the former
official, who requested anonymity. "Quite apart from the merits
of this case, every one of the member countries would want to
examine such a proposal very seriously. It would have enormous
ramifications for all the other borrowers."

Others thought that while there may be a case to be made for
forgiving Indonesian debt, alleged corruption by government
officials was not a valid reason.

"There's a good argument to be made for forgiving part of
Indonesia's official debt, or finding a way to write it down or
stretch it out in order to get the economy going again," said
Karl Jackson, director of Southeast Asian Studies at John Hopkins
University. "But that's a separate question from the corruption
issue."

Even if Indonesia were to seek a way out of its loan
repayments to the World Bank, it might not work to its advantage.
"It could send a signal of weakness to markets," one analyst
said.

Winters began his campaign to highlight corruption in the
World Bank in July 1997. On Monday, he suggested that Indonesia
take advantage of harsh criticism over its role during the Asian
crisis to win concessions on its outstanding debt.

"The World Bank is weak," he said in a Jakarta press
conference Monday. "They are up against the wall. If you wait too
long, you'll lose your chance to rectify what happened."

Winters calculates that the World Bank has lent Indonesia
about $30 billion since the late 1960s. If 30 percent of the
funds were misappropriated, he argued, then the bank should
forgive around $10 billion of its outstanding debt.

Referring to a meeting with top bank officials, Winters said
that they were prepared to take financial responsibility for the
alleged misuse of funds.

However, others thought that was highly unlikely to be the
case.