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http://www.ft.com/cms/s/0/bb7eef66-08e6-11de-b8b0-0000779fd2ac.html?nclick_check=1 Jakarta secures $2bn World Bank loan By John Aglionby in Jakarta Published: March 4 2009 18:21 | Last updated: March 4 2009 18:21 The World Bank has approved its largest loan to a country not classified as being in crisis - clearing the way for a "unique" $2bn contingency facility for Indonesia. The money is to support government spending and external fundraising during the current market turmoil. It is the World Bank's largest loan to Indonesia and is part of a $5.5bn (?4.4bn, £3.9bn) fund also supported by the Asian Development Bank, Japan and Australia. Soon after the announcement on Wednesday, Indonesia's central bank cut interest rates by 50 basis points to 7.75 per cent and gave warning that economic growth this year could be well below its 4 per cent target if the global economy declined faster than expected. The World Bank-organised facility is designed so that Jakarta can defer drawing on it while still being able to raise money at reasonable rates from conventional sources, using it to reassure investors when tapping debt markets that it can meet most of its external funding requirements. Joachim von Amsberg, the World Bank's Indonesia director, told the FT that the bank, which has never made such a loan before, was considering using it as a model for other countries. "The situation is different from country to country, but it's something the World Bank is looking at as a way to help countries leverage market financing," he said. "For markets, this [type of loan] is a comforting backstop facility that takes one of the risks off the table." Foreigners with knowledge of Indonesia's $3bn sovereign bond issuance last week said the likelihood of the drawdown facility being created was very influential for investors. Sri Mulyani Indrawati, Indonesia's finance minister and co-chair of the G20 working group studying multilateral financial institution reform, told the FT on Tuesday that she believed the World Bank should be making more of these "precautionary measure" loans. "For the World Bank, the need to provide developing countries with counter-cyclical fiscal deficit financing is very critical," she said. Mr von Amsberg said Indonesia, which approached the World Bank last October for 2009 budget support, secured the loan as a result of "prudent fiscal policies" and because "it has thought through very carefully how to reduce its crisis vulnerability". He added: "Indonesia is facing a slowdown and it faces pressures, and we are focused on the preventative aspect of its policy implementation." The central bank's rate cut, the third consecutive monthly move, reflects the speed at which south-east Asia's economy is slowing. Analysts point out, however, that such monetary measures are likely to be more efficacious in Indonesia because more than 60 per cent of its economy is driven by domestic consumption. Japan has promised $1.5bn to the loan facility while the Asian Development Bank and Australia have each indicated they will contribute $1bn. The facility is due to expire at the end of 2010. Mr von Amsberg said the best outcome would be the government not using any of the money. There was no target figure on how much would be used this year. The Indonesian government's budget indicates that external financing needs in 2009 will be Rp139,500bn ($11.6bn, ?9.3bn, £8.2bn), or 2.5 per cent of gross domestic product. The World Bank loan has a maturity of 24.5 years with a grace period of 10 years and an interest rate of Libor plus 75 basis points. The other loans are on similar terms. Copyright The Financial Times Limited 2009
