FOR IMMEDIATE RELEASE
World Bank
1818 H Street, N.W., Washington, D.C. 20433, U.S.A. * Telephone: (202) 477-1234
IBRD News Release No. 93/24Asia             Contact: Erin Burns (202)458-2210
External Affairs - EAPVP
INDONESIA FURTHER LIBERALIZES FINANCIAL SECTOR
Washington, D.C., November 13, 1992 --- Indonesia will use proceeds of a World
Bank loan of $307 million to accelerate reform of its financial sector.
Following the onset of financial reforms in 1983, Indonesia's financial
sector has been transformed into a competitive, market-based system. However,
rapid growth in both financial assets and products, as well as financial
intermediaries, is straining supervision and regulatory capacities. In
addition, existing weaknesses in the legal and information framework have
resulted in unequal access to credit.
The project will assist the Government in reforming credit allocation
practices that have handicapped competitive forces in the financial sector, as
well as the rest of the economy. This will be accomplished by increasing the
autonomy of State Commercial Banks (SCBs) and by changing their legal charters
and restructuring their balance sheets. The project will lay the foundation
for partial privatization of the SCBs.
The project will also strengthen prudential banking regulations and
improve Bank Indonesia's bank supervision, and credit information systems and
staff skills. These measures will complement recent measures by the
Government undertaken with bi-lateral and multi-lateral assistance to further
develop the money and capital markets and improve commercial law to facilitate
transactions in the private sector.
The project is expected to result in substantial efficiency gains in
resource use. The loan represents continued World Bank support for the
Government's program to establish a stable, market-oriented and well-
diversified financial system with its institutions operating in a transparent
legal and regulatory framework.
The Government of Indonesia will on-lend $300 million of the loan to
five State Commercial Banks for sub-loans to finance private investment
activities; the on-lent funds will subsequently be converted to government
equity in these Banks. The remainder of the loan will help finance technical
assistance to Bank Indonesia.
The loan is repayable over twenty years, with five years of grace, at
the World Bank's standard variable interest rate, currently 7.60 percent.
NOTE: Money figures are expressed in U.S. dollar equivalent.