World Bank looks to restart Indonesia loans

By CNN's Alex Frew McMillan in Hong Kong

JAKARTA, Indonesia -- The country manager of the World Bank's investment arm said Thursday it hopes to resume its loan program in Indonesia, now a fresh government is in place.

New President Megawati Sukarnoputri appointed her cabinet Thursday, after weeks of delay.

The International Finance Corp. (IFC), the World Bank's investment arm, stopped making new loans in Indonesia in March.

It is disappointed with the uneven way laws are applied in the country and wants to see overseas companies get fairer treatment.

Its Indonesia manager, Amitava Banerjee, told CNN that Megawati's move will move forward $250 million in loans that it has on hold.

"We are actually looking to unwrap the program at the moment," Banerjee said. "It's a cabinet as far as we're concerned we can work with."

Indonesia's relationship with lenders collapses

Indonesia's relationship with the world's powerful funding bodies, including the International Monetary Fund and the World Bank, has collapsed.

Megawati was sworn in as president, replacing Wahid, on July 23 but waited to August 9 to name her cabinet

The groups froze their loan programs in Indonesia or cut funding, as the country descended into political turmoil.

They are frustrated that business and economic reforms so far seem to be going nowhere.

The stagnation of bank restructuring, government debts and legal reforms caused the IMF to put a $400 million loan on hold last December. That stalled a vital $5 billion program.

Indonesia's government expects the IMF to send a team to Indonesia in the middle of this month.

A person close to the situation told CNN on Thursday that an August visit was still likely, though it has not been officially confirmed by the IMF.

Loans blocked in pipeline

The IFC's freeze shows how overseas companies have lost confidence in doing business in Indonesia. The group helps support overseas companies that want to operate there.

Before the Asian financial crisis, the IFC had invested $1 billion in 40 companies in Indonesia. That has now dropped to $800 million, as companies repaid loans.

But it refused to make any new loans in March, after losing a second Supreme Court appeal involving finance in Indonesia.

The IFC had $250 million in loans in the pipeline at the time. It has stopped reviewing them and giving new support.

The funding body feels it has not been treated fairly in its bankruptcy battle with PT Panca Overseas Finance. The IFC claims Panca, a troubled local finance company, owes $13 million.

"We have found the interpretation and the enforcement of the law has been arbitrary at best," Banerjee said. "Justice should be even-handed."

Critics say the country's bankruptcy laws and other rules are applied to favor local companies and businessmen.

The Canadian life insurer ManuLife is also involved in a savage business dispute in Indonesia.

Authorities arrested and jailed ManuLife executives, one for three weeks, before finally releasing them. After heavy pressure, authorities turned their attention to the company's local partner.

Such scandals involving long-established international companies in Indonesia have blunted interest in operating or working there.

ExxonMobil has had persistent problems even guaranteeing its employees won't get in the firing line in troubled Aceh province.

But for the last three months, overseas business interests saw their issues ignored.

The country's attentions turned entirely to politics, as its struggling democracy removed former president Abdurrahman Wahid, bloodlessly, from power.

Now investors and international companies hope they can see progress, with a fresh government in place.

The stability of the Megawati government is crucial to getting that loan program back on track.

Markets respond unkindly

Megawati mainly appointed technocrats to the economics and business positions. Respected bureaucrat Boediono becomes finance minister.

Stocks did not respond kindly, selling on the news. The Jakarta stock index dropped 1.2 percent immediately after her announcement, to 437.31.

But Indonesia's dog-eared currency, the rupiah, strengthened over 2 percent. It was trading at 9,170/9,230 against the dollar in Asian trade, vs. 9,395 before her appointments.

Megawati's taking power has helped it break below 10,000 and to its strongest since late last year.

Business hopes her government will be a second dawn for their hopes.

"While we don't underestimate the problems, we are optimistic that they will be overcome," Banerjee said. "There should be an environment where foreign investors have confidence."

Megawati has not revealed any of the cards in her hand. Critics fault her lack of direction. But her installation is a start.

"It's a new beginning, and we look forward to working with the new players," Banerjee said.