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World Bank OKs $2 bln contingency loan for Indonesia

  The World Bank on Tuesday approved a $2 billion contingency loan for Indonesia, which the government will be able to draw upon should market conditions and access to credit worsen due to the global crisis.

The loan is part of an overall $5.5 billion contingency financing facility for Indonesia, which could include $1-1.5 billion each from Australia, Japan and the Asian Development Bank.

“The Indonesian government can use these funds if market liquidity conditions continue to tighten and government access to international or domestic financial markets is limited,” the World Bank said in a statement.

World Bank Country Director for Indonesia, Joachim von Amsberg, said the loan “is meant as insurance to negative market events”. He said the government has been proactive in dealing with the effects of the world crisis to maintain the confidence of international and domestic investors.

“Indonesia is in a stable situation and is suffering from the global slowdown and, of course, trade and exports are slowing,” von Amsberg said in an interview. “It is entering this crisis from a very strong macroeconomic position, very good policies over the past years and a dramatic reduction in debt, which makes Indonesia much less vulnerable than other countries,” he said.

The government had compiled a credible program to reduce weaknesses in the financial sector, but there are no guarantees that problems could arise in the future, he said. “We don’t really see any particular vulnerabilities right now,” von Amsberg added. The facility would reinforce government policies to reassure financial markets and maintain financial system stability, and sustain public expenditures during the global crisis, he added.

“Having to contend with a crisis and with risks that are not of its own making, the government is implementing a substantial reform agenda aimed at calming financial markets and continuing public investments for growth and poverty reduction,” he said.

He said Indonesia had cut its debt-to-GDP ratio more than any major economy in the region, reducing it to 30% in 2008 from 55% in 2004. “Therefore, Indonesia can afford to maintain or even expand public spending during the international crisis. The strong macroeconomic management of previous years is now paying off,” von Amsberg said. (Reuters)