Reply #5: World Bank grants $2bn loan to Indonesia

[Demeter]

http://www.ft.com/cms/s/0/b34b15bc-086f-11de-8a33-0000779fd2ac.html

The World Bank on Tuesday approved its largest ever loan to a country not classified as being in crisis when its board signed off on a “unique” $2bn contingency facility to Indonesia to support government spending and external fundraising during the current market turmoil.

The money, the largest ever World Bank loan to Indonesia, is part of a $5.5bn fund which also involves Japan, Australia and the Asian Development Bank.

Indonesia’s central bank on Wednesday cut its interest rate by 50 basis points to 7.75 per cent bringing the cost of borrowing to its lowest level since the rate was introduced in mid-2005. The bank has now eased rates by 175 basis points since December 2008.

The concept of the World Bank loan is that Jakarta can defer drawing upon it while it can still raise money at reasonable rates from conventional sources but use it to reassure investors when tapping debt markets that it can meet the majority of its external funding requirements.

Joachim von Amsberg, the World Bank’s Indonesia country director, told the Financial Times that the World Bank management, which has never made such a loan before, is 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 is a comforting backstop facility that takes one of the risks off the table.”