Thu, 30 Aug 2001

World Bank to provide $420m new loan for Indonesia

JAKARTA (JP): The World Bank said on Wednesday that it would extend US$420 million in new loans to Indonesia to help finance the country's poverty reduction programs.

World Bank chief economist in Jakarta Vikram Nehru told The Jakarta Post that the bank and the government would sign the loan agreement on Thursday.

Nehru confirmed a report by Dow Jones newswire, saying the bank plans to extend $420 million in new loans to Indonesia.

It said the bank would give just under half the total loans on concessional terms of zero interest over 40 years.

The loans will bring the World Bank's lending to Indonesia for this fiscal year to almost $500 million, compared with an average of $1.3 billion of loans it extended to Jakarta during the 1990s, it said.

"We wanted to find a lending strategy that wouldn't exacerbate the government's debt situation," Nehru told the newswire.

The sharp cut in World Bank loans was in line with the bank's change in its loan strategy for Indonesia.

Under the new strategy, the World Bank will provide less funds but at more generous terms.

A senior World Bank official has said the bank wanted to move from a "crisis" approach to a renewed emphasis on development and poverty alleviation.

But analysts have warned the move reflects the World Bank's growing concern over Indonesia's slow reforms process.

In addition, concern is mounting that Indonesia has run into a debt trap amid its slow progress in reducing its reliance on foreign aid.

Suggestions to slash financial aid to Indonesia has come from World Bank country director in Indonesia Mark Baird, who said the country would benefit from loans of between $400 million and $1 billion a year.

"Thursday's loan agreement with the World Bank will fund five projects in poorer areas of Indonesia, including infrastructure development, environmental management and local health care improvement," Nehru said.

He added the World Bank would also sign grants on behalf of the Dutch and Japanese governments, which will be aimed at community development.

The signing of a new loan agreement with the World Bank comes just after the government secures another loan deal with the International Monetary Fund (IMF).

The deal provided Indonesia with a much-needed boost in maintaining donor countries' confidence in the country's economic reforms progress.

Most of Indonesia's foreign creditors, including the World Bank, link their loan programs to the government's ability to comply with the IMF's reform targets.

The IMF had suspended its loan to Indonesia from December as the government was lagging on a number of reform targets.

In November, Indonesia plans to meet donor countries under the Consultative Group on Indonesia (CGI), which last year pledged some $4.1 billion in loans.

The government has said it is in dire need of a higher amount of loans than last year to cover an increase in foreign debt payments.(bkm)