Jakarta – The World Bank's board in Washington has approved a new lending program for Indonesia of $400 million annually over the next three years, much lower than the $1.3 billion average yearly funding in the mid-1990s.

However, the World Bank will lend the funds under more generous terms than previously, reflecting a desire to move from a "crisis" approach to a renewed emphasis on poverty alleviation, the bank said in a statement.

About one third of the total lending under the new program will be from the bank's concessional lending arm – the International Development Association.

IDA loans, which are interest free and have terms of up to 40 years, would "ensure a continuing flow of finance for development and poverty reduction without increasing Indonesia's debt-service demands in the near term," the statement said.

Indonesia's foreign public debt is already a huge $70 billion, and the government relies on loans from the World Bank and bilateral donor countries to balance its budget.

Efforts by Jakarta to draw up a broad-based poverty strategy, and implement other economic reform measures, could lead to an increase in World Bank lending to $1 billion a year, the statement said.

Much of the World Bank's loan program to Indonesia in the last decade has found its way into the pockets of civil servants and family of former dictator Suharto rather than the poor, the bank has admitted.

On a visit to Jakarta last year, World Bank President James Wolfensohn said there had been estimates that 10% to 40% of bank loans to Indonesia had been squandered due to corruption under Suharto. But Wolfensohn added misuse of bank funds had been reduced after Suharto's downfall in 1998.

The World Bank said it would also put an emphasis on trying to eradicate corruption from its ongoing 56 projects in Indonesia.