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.