IMF worried over crisis in Indonesia<\/p>\n
WASHINGTON (Reuters): IMF officials on Tuesday called
\nIndonesia's economic crisis worrisome and faulted the Jakarta
\ngovernment for failing to follow through on pledges to
\nrestructure the nation's economy, the Washington Post reported
\nyesterday.<\/p>\n
\"We would like to see the senior leadership in Indonesia stand
\nup and be counted on the reforms,\" the newspaper quoted a senior
\nInternational Monetary Fund official as saying.<\/p>\n
\"I think the markets are asking themselves the question of
\njust how much the senior Indonesian leadership is committed to
\nthese programs and particularly to the major reform measures that
\naffect the family\" of President Soeharto, the official told the
\npaper.<\/p>\n
Indonesia, which agreed on an IMF-led bailout of over $40
\nbillion in October, has seen its currency continue to decline
\nsharply despite the rescue package. The Jakarta government also
\nannounced a budget on Tuesday that failed to meet targets set by
\nthe IMF under the bailout deal.<\/p>\n
The rupiah's continued declines are raising the prospect that
\nIndonesia's bailout package will have to be supplemented or
\naltered in some way, the officials said.<\/p>\n
One possible outcome is the IMF, which disbursed $3 billion in
\nloans to Indonesia in November, will refuse to approve a second
\ninstallment of $3 billion that is scheduled to be advanced in
\nmid-March after a review of Indonesia's performance.<\/p>\n
The Post quoted one IMF official as saying: \"It will be a key
\nmoment for all of us -- not just the Indonesians, but all of us
\ntrying to think through how to deal with this situation
\nsuccessfully.\"<\/p>\n
Indonesia announced a Rp 133.5 trillion rupiah budget for the
\nyear beginning April 1, setting an increase of 32.1 percent in
\ngovernment expenditures and revenues from the current budget,
\ndisappointing analysts and financial markets.<\/p>\n
Markets voted with their feet after the budget. The rupiah
\nplunged to a fresh low of 8,200 in early trade yesterday and the
\nJakarta stock market index opened more than one percent down at
\njust under 400 points.<\/p>\n
Analysts said projections of four percent economic growth,
\ninflation at nine percent, the rupiah at 4,000 to the dollar and
\nan increase in tax revenue during the period were difficult to
\nachieve given the depth of the crisis.<\/p>\n
In Hong Kong, Asian fund managers said yesterday Indonesia's
\nfailure to table a credible 1998\/99 budget was expected to spur a
\nsecond round of negotiations between Jakarta and the IMF.<\/p>\n
\"(IMF managing director) Michel Camdessus is a strict
\ndisciplinarian,\" said Marshall Mays, chief strategist at Nikko
\nResearch Centre in Hong Kong. \"He won't flinch. He'll come back
\nand say 'This is it. No more money. Your next tranche sits in the
\nbank.'\"<\/p>\n
Some Asian analysts said the budget revealed that the
\nIndonesian government considered IMF discipline a secondary
\nconcern to the risk of social disturbance prior to March
\npresidential elections.<\/p>\n
\"Indonesia is backing away from the table and saying, we
\ncannot do this,\" said Mays.<\/p>\n
Chris Tinker, head of regional economics at ING Barings, said
\nthat with its budget, Indonesia was following a path already
\ntraveled by IMF recipients South Korea and Thailand -- back to
\nthe agency's doors with a plea for leniency.<\/p>\n
He said that balancing the budget in a debt-laden economy
\nconfronting mass bankruptcies and a collapse in consumer demand
\nwould be extremely difficult, and achieving a surplus under these
\nconditions was highly unlikely.<\/p>\n
The IMF will not want to be seen to be backing down from its
\noriginal requirements, but probably underestimated the social
\nrisks of the economic plan agreed to in October, Tinker said.<\/p>\n
\"But unfortunately, trying to force the issue in the current
\nclimate where most of corporate Indonesia is effectively bankrupt
\nis just something that has huge socio-economic consequences which
\nthe IMF had no anticipation of provoking.\"<\/p>\n
More than two million workers have been laid off and civil
\nservants have been denied even an inflation-indexed pay increase.<\/p>\n
But Mays argued that rather than genuine labor riots,
\nIndonesia was now at risk from social unrest provoked by powerful
\ninterest groups willing to pay peasants to stir up trouble in a
\nbid to resist economic reforms.<\/p>\n
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