[god bless moral hazard.....]
[New York Times] December 2, 2003 World Bank Again Giving Large Loans to Indonesia By JANE PERLEZ JAKARTA, Indonesia, Dec. 1 - After several years of reduced support because of government corruption, the World Bank has decided to increase its loans to Indonesia, even though the bank says corruption is still rampant. In justifying a new package of loans, the World Bank says that Indonesia, rich in natural resources of oil, natural gas, minerals and forests, has too many people in poverty and that the money will "spur the momentum of reforms." The new loans, some of which the bank says are dependent on measurable declines in government corruption, were approved by the bank's board in Washington last week. The bank says that in return, the Indonesian government will be required to establish an anticorruption commission and strengthen government procurement methods. Critics dismiss the measures as window dressing, saying they lack the enforcement power to have much effect. The action comes as part of an effort to rebuild the bank's credibility here after a disastrous period in the 1990's, when it was perceived as a pillar of the autocratic and corrupt government of General Suharto. Back then, the bank provided an almost automatic $1 billion a year. But after General Suharto fell in 1998, the number dropped to $400 million, where it has remained every year since. Under the new plan, the bank said it expected to lend a minimum of about $580 million this year, with increases up to $850 million by 2007. But in what the bank calls a "high case" scenario, Indonesia could qualify for $1.2 billion annually from 2005 to 2007. The new strategy follows an intense internal debate about whether the bank has been tough enough on Indonesia's corruption, both in general and in the bank's programs. The bank's country director in Indonesia, Andrew Steer, said the bank aimed to "integrate governance and corruption issues through the entire Indonesia program." This, the bank explained in a statement, meant the "comprehensive monitoring of corruption" of local governments and "safeguards to minimize the risks of corruption" by inviting local governments into investment decisions. Mr. Steer, who most recently spearheaded the bank's aggressive lending in Vietnam, said the new loan package was essentially agreed to after Indonesia announced in September its economic program for next year. That plan, which includes promises of collecting taxes more aggressively, privatizing state enterprises and revising procurement procedures, would improve the investment climate and help reduce poverty, if implemented, Mr. Steer said. "We're saying, `You're moving in the right direction; we're willing to support you,' " Mr. Steer said in an interview in his office here. Critics of the Indonesian government take a decidedly cautious view toward pronouncements about cleaning up corruption. "If you have money and you give it to a corrupt person, that person is still corrupt," said Danang Widoyoko, a senior official of Indonesian Corruption Watch. "You should stop giving money until the person makes a good effort not to corrupt. In Indonesia, there is no significant improvement, but the World Bank still wants to lend money." Mr. Danang cited a modest $1 million bank program to help local schools as an example of where even small programs could go awry. Indonesian Corruption Watch discovered in March that local officials in the Garut district in West Java were demanding down payments from the schools before they would be eligible for the money, Mr. Danang said. One of the most controversial aspects of the new program among some bank officials is the offer, under certain conditions, of a $200 million adjustment loan for the fourth quarter of next year. Those funds would go directly to the budget and could be spent on whatever the government likes, including the military. In the past several years, the bank has tried to steer financing away from the central government in an effort to minimize big projects that often invite corruption. Instead, the bank has concentrated on financing grass-roots community development in more than 20,000 Indonesian villages, the most ambitious project of its kind in Southeast Asia. But bank officials said the village projects would be less dominant in the new overall assistance package because they could not continue to absorb money at the current rate. Among the more egregious corruption cases that the World Bank uncovered in Indonesia was the siphoning of bank funds from a $76-million urban development program in Sulawesi. An investigation conducted under the bank's former country director, Mark Baird, who left Indonesia last year, found that 30 percent of the funds had disappeared. The project was suspended in 2002.
