Global Policy Forum

By Robert Go

Indonesia offered up to $1.4 billion yearly for the next four years if it can speed up efforts to be more transparent

Arguing that Indonesia needs lots of help to lift millions out of poverty, the World Bank has offered fresh loans of between US$450 million (S$777 million) and US$850 million for each of the next four years. The bank also dangled a carrot to entice Jakarta to speed up reforms. From 2005 to 2007, this 'high-case' package could push annual aid to as much as US$1.4 billion.

The loans on the table are higher than the US$400 million the bank has agreed to extend to Indonesia during the last three years.

Mr Andrew Steer, the lender's top official here, said the government had reduced the number of poor within the population since a peak during the economic crisis - 16 per cent of Indonesians are impoverished now, compared to 27 per cent in 1999. Yet around 100 million still make do with US$2, or less, a day. The bank described this group as 'vulnerable to falling back into severe poverty'. Mr Steer said: 'The World Bank will do all in its power to help support Indonesia at this crucial time in its development. We are willing to go the extra mile if the pace of reforms is strong.'

With this latest assistance plan, the World Bank approaches a lending level to Indonesia that was last seen in the late 1990s. During the last years of the Suharto government, the bank made available an average of US$1.3 billion in annual loans. As much as 30 per cent of that money fell victim to corruption, and the lender admitted 'the Bank was perceived to have failed to take a stand against corruption while lending large sums of money in support of the Suharto regime'.

The perception is that things are different now. Bank officials said corruption remains 'a huge challenge' in Indonesia and reform measures promised by Jakarta 'have been undermined by weak implementation'.

The report which was issued yesterday said: 'The gap between the promise and the reality of reform in Indonesia has been large.' Yet 'unlike many other countries facing similar governance problems, Indonesia has begun to undertake important structural reforms that could ultimately lead to more transparent and accountable government'.

Mr Steer, in describing the challenges faced by Jakarta, said: 'There is a revolution going on in this country, and we should support it.'

Mr Joel Hellman, the bank's chief governance adviser in Indonesia, said the lender had initiated higher performance standards and stricter accountability measures when it came to its loans. He said the mechanisms implemented to make sure the bank's loans to Indonesia were protected from graft were among the toughest when compared to similar measures enacted in other countries.

Bank officials, perhaps in response to critics who said Indonesia should stop borrowing money from foreign sources, said the ratio of their loans to the country's GDP would drop from the current 5 per cent to 1 per cent by 2010. Mr Bert Hoffman, the bank's chief economist in Jakarta, said: 'Indonesia's debt to the World Bank has fallen significantly and will continue to do so under the proposed programme.'

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