Govt signs new pact with IMF<\/p>\n
JAKARTA (JP): The government has signed another agreement with
\nthe International Monetary Fund (IMF), the fourth in nine months,
\npromising yet more reforms in a bid to arrest the country's
\neconomic turmoil.<\/p>\n
Success of the programs, however, hinges on additional foreign
\nfinancial assistance of between US$6 billion and $8 billion.<\/p>\n
The latest letter of intent is far less restrictive than
\nprevious ones, allowing the government to maintain subsidies on
\nfood, fuel, electricity and other spending on \"social safety net\"
\nprograms to help the poor cope with the crisis.<\/p>\n
Previously, the IMF insisted these subsidies be phased out
\nwithin the year.<\/p>\n
The agreement, signed by Coordinating Minister of Economy,
\nFinance and Industry Ginandjar Kartasasmita on Wednesday evening,
\nwas announced yesterday after a meeting between IMF Asia-Pacific
\nDirector Hubert Neiss and President B.J. Habibie at the Bina
\nGraha presidential office.<\/p>\n
Neiss, who took part in the media briefing led by Ginandjar
\nafterwards, said the IMF-backed reform programs should \"clear the
\nway for further international financial assistance, which at this
\ntime Indonesia urgently needs.\"<\/p>\n
The IMF executive board will decide on the disbursement of the
\nnext $1 billion tranche in the middle of next month, Neiss said.<\/p>\n
Indonesia has already received $4 billion since October from
\nthe IMF, which organized a $43 billion international bailout
\npackage to help Jakarta get its economy back on track. The Fund
\nis releasing its commitments in $1 billion monthly installments,
\npending satisfactory progress reports from the government.<\/p>\n
The government has revised many of its economic targets and
\nassumptions that it made in the previous letter of intent sent to
\nthe IMF in April by president Soeharto's administration.<\/p>\n
Economic and political turmoil has further crippled the
\neconomy, making macroeconomic targets projected in April
\nunrealistic.<\/p>\n
The government now predicts a 10 percent contraction of the
\neconomy this year instead of 5 percent previously predicted.
\nInflation is projected to reach 80 percent, instead of 40 percent
\npredicted in April, it said.<\/p>\n
The government hopes to strengthen the rupiah's exchange rate
\nto 10,000 against the U.S. dollar by the last quarter of this
\nyear. The rupiah's exchange rate hovered at the 14,500 level this
\nweek.<\/p>\n
In April, the government predicted the rate to strengthen to
\n6,000 to the dollar this year.<\/p>\n
Ginandjar said the country's economic decline should stop once
\nthe economic programs were implemented and confidence in the
\neconomy returned. He said increases in the inflation rate should
\nslow in the coming months as well.<\/p>\n
The government's social safety net programs will take a heavy
\nchunk of its budget, already significantly scaled down because of
\nhuge projected revenue shortfalls, he said.<\/p>\n
Social spending allocations are expected to force a budget
\ndeficit amounting to 8.5 percent of gross domestic product.<\/p>\n
The shortfall is to be covered by foreign financing.<\/p>\n
Ginandjar said the government had already secured $4 billion
\nin foreign loans to finance the deficit, and needed between $6
\nbillion and $8 billion more to cover the remaining gap.<\/p>\n
\"Rebuilding the economy is for the Indonesian people alone to
\ndo. But this endeavor is difficult without help from the
\ninternational community, given the extent of the problem,\"
\nGinandjar said.<\/p>\n
He said the Asian Development Bank announced in Manila
\nyesterday that it would extend $1.5 billion in new loans to
\nIndonesia. The World Bank has already pledged $1 billion and
\nJapan is also expected to come up with more aid next month, he
\nadded.<\/p>\n
Other major points in the latest programs include:<\/p>\n
* Continuation of the tight money policy to stabilize the
\nrupiah exchange rate and slow the rate of inflation. The
\ngovernment will maintain base money and net domestic assets --
\nboth used as the broad measure of money supply -- at current
\nlevels until at least the third quarter.<\/p>\n
* Strengthening Bank Indonesia's monetary management. Central
\nbank promissory notes (SBIs) will be auctioned to allow the
\nmarket to set interest rates. SBIs will become Bank Indonesia's
\nprimary instrument for open market operations.<\/p>\n
* Actively providing support for sound banks and restructuring
\nthe capital of troubled banks, such as selling their equity to
\nlocal and foreign investors. The government continues to
\nguarantee the safety of public money deposited in banks.<\/p>\n
* Ensuring supply and distribution of basic commodities,
\nparticularly rice, cooking oil, sugar and soybean.<\/p>\n
* Launching more labor-intensive public works programs, and
\nusing \"food-for-work\" schemes in drought-stricken areas.<\/p>\n
* Rehabilitating and strengthening the food distribution
\nnetwork.<\/p>\n
* Subjecting Pertamina, the state electricity company (PLN)
\nand the State Logistics Agency (Bulog) to audits using
\ninternational standards. The government's Reforestation Fund will
\nalso be similarly audited.<\/p>\n
* As a temporary solution to finance international trade, Bank
\nIndonesia will establish in July a pre-shipment export guarantee
\nprogram to facilitate import and pre-shipment export financing
\nfor exporters holding letters of credit.<\/p>\n
Neiss said the programs should be widely disseminated and
\nexplained to ensure widespread support. \"Economic policies will
\nbe effective if there is a broad consensus through the political
\nspectrum on measures that are needed,\" he said.<\/p>\n
Ginandjar said any recovery was likely to be gradual and slow.<\/p>\n
\"If these programs can be truly and wholly implemented, then
\nour economy can gradually recover along with the return of public
\nconfidence.<\/p>\n
\"The process of recovery cannot be swift due to the severity
\nof the economic situation. There are still tough times ahead of
\nus which we will have to deal with together through
\nperseverance,\" Ginandjar said. (prb\/emb)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/govt-signs-new-pact-with-imf-1447893297",
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