World Bank Threatens to Halt Jakarta's Aid Over Scandal
8/26/99
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Title: World Bank Threatens to Halt Jakarta's Aid Over Scandal
Source: International Herald Tribune
Status: Copyright 1999, contact source for permission to reprint
Date: August 26, 1999
Byline: Keith Richburg
JAKARTA - The World Bank's threat to withhold economic assistance
from Indonesia over a burgeoning multimillion-dollar banking scandal
marked the first time that the bank, which has been involved in the
country for decades, has publicly announced that it might hold up
lending over a matter of corruption.
The bank's stance appeared to signal a greater willingness to speak
out against official, endemic corruption in Jakarta, and it
underscores the seriousness of the latest scandal, which has already
driven down the value of the rupiah and has eroded faith in a massive
plan to bail out the ailing Indonesian banking system.
On Wednesday, the International Monetary Fund weighed in with its own
critical assessment of Jakarta's handling of the scandal involving a
mysterious ''commission fee'' of nearly $80 million paid by Bank Bali
as the price for recouping its interbank loans. Interbank loans are
supposed to be guaranteed by the government, and no commission should
have been paid, banking experts here said.
Hubert Neiss, Asia-Pacific director of the International Monetary
Fund, said Wednesday that Indonesia was courting an economic
''disaster'' over its handling of the scandal, Bloomberg News
reported.
Mr. Neiss, who oversees the Fund's multibillion-dollar bailout
package for Indonesia, said the government of President B.J. Habibie
was putting the country's economic recovery at risk. The IMF, he
said, has urged the government to use all legal means to resolve the
scandal openly. ''An unsatisfactory solution would be a disaster
scenario, which I don't want to speculate at this stage,'' Mr. Neiss
said at a conference in Jakarta.
Mark Baird, the World Bank director for Indonesia, said Tuesday, ''It
is very difficult for us to provide budget support for Indonesia if
the case is not satisfactorily resolved.'' He mentioned no specific
programs or amounts, but an aid cutoff could affect up to $1 billion
in loans for rural development and governmental reforms.
Mr. Baird's statement followed remarks in a speech here by the World
Bank vice president for East Asia and the Pacific, Jean-Michel
Severino, who told a conference on capital markets that the scandal
needed to be investigated quickly and openly to restore confidence to
the bank-restructuring program.
''The World Bank remains deeply concerned over the situation with
Bank Bali and the broader implications for the bank restructuring
program,'' Mr. Severino said. ''I urge that the process be completed
as quickly and transparently as possible, that details of the case be
explained to the public and that any wrongdoers be subject to the
full force of the law.''
The international lending community has become concerned about the
case because it touches the single most important institution set up
here after the 1997-98 economic crisis, the Indonesian Bank
Restructuring Agency, which until now had enjoyed a reputation for
efficiency and integrity. At issue is the multibillion-dollar bank
restructuring plan, under which foreign banks were supposed to get
involved in taking over the management of ailing Indonesian banks in
exchange for providing badly needed capital.