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World Bank response to Winters statement

World Bank Press Release - July 28, 1997

Washington – World Bank loans to Indonesia are thoroughly supervised and audited to ensure that they are devoted to the poverty-alleviating purposes for which they are intended, the institution said today.

The Bank is refuting an allegation by an assistant professor at Northwestern University in the United States, Jeffrey Winters, who is reported as claiming in Jakarta yesterday that at least a third of World Bank loans to Indonesia "leak into the government bureaucracy and disappear".

"This is demonstrably untrue," said the World Bank's Vice-President for East Asia and the Pacific, Jean-Michel Severino. "We know exactly where our money is going. Worldwide we have very stringent standards for disbursement of our loans. If supervision of our projects produced any evidence of misappropriation or misallocation of our funds, we would take swift action to stop it. We do not tolerate corruption in our programs. On this principle there is no compromise."

"It is deeply regrettable," noted the World Bank's Jakarta-based Country Director for Indonesia, Dennis de Tray, "that our work for the people of Indonesia should be misrepresented in this way. The procurement of goods and services financed under Bank loans is conducted through open, transparent and competitive international procedures. Funds are disbursed only to suppliers of these goods and services under contracts approved by the Bank. There is full accountability on the use of Bank funds through a comprehensive system of independent ex-post financial audits of project accounts. The Bank itself carries out separate reviews on the use and development impact of its loan."

Mr. Severino said the Bank was puzzled by Mr. Winters' allegation. "We have checked his claim, which he has made in the past, and found nothing to support such an estimate."

"We have had a small number of projects rated unsatisfactory by the Bank's own assessment standards, but Indonesia retains one of the best records of successful project implementation of any of our client countries across the developing world," Mr. Severino added. "The results are there for all to see. Over a single generation, there has been a huge improvement in the living standards of the Indonesian people, and we are pleased to be a partner in this progress."

On Mr. Winters' claim that much information on Bank loans to Indonesia was non-existent or unavailable, World Bank officials said there was no secret about the amount of money lent to Indonesia or any other client country, with a full accounting of all loans being made in press releases, the World Bank's Annual Report and other public documents available through the Bank's Public Information Center. "I am surprised that Mr. Winters doesn't seem to know this," Mr. Severino noted.

The Vice-President added that the Bank was fully aware of international surveys suggesting that corruption was a problem in many countries, including Indonesia, and said the Bank was not only vigilant in protecting the integrity of its loans, but active in helping governments to implement national programs to discourage corrupt practices.

He said the Bank's latest World Development Report, entitled "The State in a Changing World", had much to say about good government being a vital necessity for development. The issue has been raised at the recent Indonesian Consultative Group meeting in Tokyo chaired by the World Bank, and recommendations on good governance have been made in the latest Indonesia country economic memorandum prepared by the Bank.

Indonesia and the World Bank

Indonesia resumed membership in the World Bank in April 1967; the Bank's mandate in Indonesia, as in all its borrowing member countries, is to support broad-based economic development and the reduction of poverty. Cumulative World Bank lending to Indonesia as of June 30, 1997, was approximately $24.7 billion. There are 78 projects currently being implemented, with a 91 percent satisfactory approval rating.

In FY97, World Bank lending to Indonesia totaled $914.6 million for 11 projects. Lending in FY97 focused on infrastructure and rural and social development, and was marked by an increased emphasis on decentralization and participation, with a number of projects having a regional focus and greater beneficiary participation. Loans for urban infrastructure development totaled $405.1 million; a railway efficiency project was approved for $105 million. Education loans totaling $273.2 million financed projects to improve quality of secondary education-particularly in rural areas-and higher education. In addition, loans were approved to finance two alternative energy power projects benefiting rural areas, a health improvement project, and an audit/financial management project.

Indonesia's development priorities, and therefore the focus of Bank support, have changed over the years to reflect a greater awareness of regional differences, a stronger commitment to deregulation, an increased role for the private sector, and greater attention to the quality of health and education, sustainable resource management, the urban environment, and institutional development. A major focus will be on improving regional capacities to plan, prepare and implement projects at the local level.