Asia Times: World Bank OKs loans



	May 22, 1999	atimes.com

Southeast Asia

World Bank OKs loans - with conditions
By Abid Aslam

WASHINGTON - The World Bank has approved $1.1 billionin new loans to Indonesia on condition that Jakarta doesnot use the money until after parliamentary elections on June 7. Indonesian authorities have agreed to deposit the funds in ablocked account which cannot be used until June 30.

The funds cleared by the Bank Thursday included a $500 million ''Second Policy Reform Support Loan'' and a $600 million ''Social Safety Net Adjustment Loan."

The former will provide general budgetary support tied to bankand corporate restructuring and the latter will aid food, health,and scholarship programmes, according to a bank statement.

''We don't need the money immediately but we do need thecommitment now, so we can plan budget spending over the remainderof the fiscal year,'' said Jannes Hutagalung, the Indonesianexecutive director at the World Bank.

Loan approval had been scheduled for Tuesday, when two smallerfunding packages were passed. These included a $300 million''Water Resources Structural Adjustment Loan'' and $100 millionfor the ''Indonesia Urban Poverty Project."

U.S. officials postponed a decision on the larger loans by 48hours, citing fears that the money would be used by the Jakartagovernment, dominated by President Suharto until his resignation ayear ago, to buy votes in Indonesia's first free election since1955.

Those concerns were raised by more than 400 Indonesiancitizens' groups, who warned that the loans ''will be utilised bythe ruling Golkar party to ensure its hold on power."

''There is no technical reason why these loans cannot bepostponed,'' they said in a letter to the bank's executivedirectors. The government ''has proven that it has sufficient cashreserves to arm an extraordinarily violent militia movement inEast Timor, to send troops to seal off the border of West Papua,and to send troops to fire on unarmed demonstrators in Aceh."

Each of the three regions has challenged Jakarta's hold overit.

''Instead of increasing Indonesia's staggering debt load, whichwill have to be repaid by our children and grandchildren, the Bankshould pressure the [government] to redirect towards povertyalleviation the tremendous amount of funds it is currently usingfor the repression of our civilian population,'' the religious,development and environmental groups said.

Next month's parliamentary elections will pave the way for theselection of a new president later this year. Polls have shownthat President B.J. Habibie - Suharto's hand-picked successor -and Golkar have suffered because of continuing disclosures ofcorruption during the Suharto regime.

In addition, the World Bank itself came under fire fortolerating and covering up misuse of past loans.

Sources at the lending agency and the International Monetary Fund(IMF) said the agreed spending freeze likely would bolster thebank's and Habibie's credibility without upsetting scheduledimplementation of an economic program adopted under the IMF'stutelage.

The IMF so far has disbursed some $9.5 billion of its$11 billion loan commitment. The IMF's board of directorswas scheduled to meet at the end of this month to clear another$460 million and this sum likely would be accompanied by$500 million in loans under Japan's Miyazawa Plan.

Disbursement of the safety net loan will be ''contingent onclear evidence'' of strengthened governance and accountability insocial programmes, the bank said.

Earlier this year, Indonesian media reported that the governmenthad ''mistargeted'' or misappropriated nearly half of thecountry's Social Safety Net Fund and that officials hadadvertised much of the money meted out as ''Golkar aid."

The letter from the grassroots organizations in the SoutheastAsian country urged that the program be taken back to thedrawing board and its design opened to broader participation bythe intended beneficiaries.

They argued that, as currently set up, the scheme was inviolation of the bank's rules on adjustment lending, which callfor ''political stability [and] support - or at least the lack ofopposition - from the principal constituencies."

The groups noted that, last month, ''7,000 of the Jakarta urbanpoor, one of the principal constituencies of the program, signeda petition rejecting the . . . program based on their experiencethat it is full of corruption, does not benefit the poor and leadsto a tremendous debt burden to our country."

Alleged violations of World Bank rules also have been made byIndonesian farmers against the Integrated Swamps DevelopmentProject, which they said was plagued with corruption and hadresulted in increased use of hazardous pesticides despite bankpest management policies geared to reduce dependence on theharmful chemicals.

Environmentalists last month urged the Bank to ''release allfinancial and technical audits of the swamps developmentproject [and] establish an independent body to which Indonesianfarmers can report complaints, irregularities, extortion, etc.without fear of reprisal."

Bank officials said they were looking into the farmers'complaints.

The urban poverty project approved Tuesday was the first since1980 to be fully funded by the International DevelopmentAssociation (IDA), the World Bank's soft loan window.

Indonesia's economic and social meltdown, which has pushedaround half of the country's 200 million people below the povertyline since 1997, moved the bank to list the country as temporarilyeligible for practically zero-interest IDA loans, normally reservedfor the poorest countries.

(Inter Press Service)

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