Indonesia will get a 400 million dollar loan from the Asian Development Bank (ADB) to help it reform and return its state-owned corporations to private hands, the Philippines-based lender said.

The program loan would help Jakarta improve resource allocation in the public sector and increase the profitability of state-owned enterprises (SOEs), thus promoting private sector interest in them, an ADB-statement said.

"Privatizing SOEs will also allow the government to release scarce resources for poverty reduction and social development programs," it added.

The bank said that while President Megawati Sukarnoputri's government had made a firm commitment to SOE reform, "there may be some opposition as a result of corporate restructuring and privatization". Growing public debt and the need to curb inflation are limiting expansionary policy, it added.

It said the Asian crisis had showed that "many weaknesses of Indonesia's SOEs are related to poor governance. The main causes are government interference in day-to-day operations, lax internal controls, loopholes in accounting practices, and poor auditing standards and practices. "Indiscriminate subsidies and protection have undermined SOEs," it added.

The ADB loan from its ordinary resources is payable over 15 years including a three-year grace. It would be disbursed in three tranches subject to the government meeting conditions of loan effectiveness. Ordinary ADB loans are based on the London-interbank offered rate (LIBOR).