Jakarta – The World Bank has warned the Indonesian government to seriously tackle corruption, saying that progress in stamping out loan abuse was the key to the bank's future lending strategy for the country. Indonesia should focus less on the level of lending it received, more on how well the money was being used, World Bank country director Mark Baird said on Thursday.

"Indonesia should not borrow money if it is not prepared to take every step to see that it is used well," he said in a speech marking the signing of a US$448 million loan and grant package for Indonesia.

The loans are aimed at the reduction of poverty across a broad spectrum. They are to cover development projects for the health, education and environment sectors, district economies, and overseas working women. About one-third of the loans will come from the concessional International Development Assistance (IDA) facility, which carries zero interest and is payable over a term of 35 years.

"The more confidence we have that the money is well spent, the more willing the government will be to borrow, and the more willing we will be to lend," Mr Baird said. "Corrupt projects are bad projects and they should be stopped dead in their tracks." Last April, the World Bank cancelled a US$300 million loan tranche to Indonesia in order, many believed, to prevent further abuse of its loan.

The tranche was part of a $600-million loan agreement signed in 1999 which was designed to shelter the poor from the effects of the economic crisis. The World Bank noted in its review of the first loan tranche that the "slow pace of meaningful change in bureaucratic culture had rendered modest the impact of the aid on the poor".

Unconfirmed reports said about 30 per cent of World Bank loans, about US$10 billion, fell victim to corruption under the 30-year rule of former President Suharto. The World Bank has acknowledged the abuse took place but has never named a suspect.

Reports of the alleged abuse of World Bank funds were still under investigation. Progress was slow because of difficulties faced in Indonesia when seeking proof of corruption.

Noting that the current loan programmes provided ways to prevent abuse, Mr Baird said transparency needed to be balanced with proper accountability to ensure that corruption was weeded out and that the aid money was well spent.