Indonesia and IMF agree on reform package<\/p>\n
JAKARTA (JP): The following is the full text of the government
\npress release on the reform package agreed upon by the Indonesian
\ngovernment and IMF after two weeks of negotiations:<\/p>\n
The impact of an ongoing monetary crisis since July 1997 has
\nbeen reflected in the drastic depreciation of the Southeast Asian
\ncurrencies. This excessive depreciation could lead to an
\neconomic crises if not handled in a firm an timely manner. The
\ncurrency turmoil has spread throughout East Asia, and last week
\nwe witnessed a drastic drop in stock market indexes in the United
\nStates, Europe, Latin America, East Asia and Australia. This is
\nan indication that the volatility in financial markets and in
\ncapital markets has become a global phenomenon.<\/p>\n
To minimize the negative impact of this volatility and
\nuncertainty, the Indonesian government has taken a number of
\nsteps aimed at improving national efficiency, economic endurance
\nand global competitiveness. Those steps include:
\n 1. Adjustment of government expenditures so that the state
\nbudget can, at a minimum, be maintained in a position of balance.
\n 2. Adjustment of interest rates and liquidity so as to stabilize
\nthe exchange rate. This is deemed necessary considering that the
\nrupiah exchange rate has been floated and that monetary crises
\nhave been experienced throughout South East Asia.
\n 3. Postponement and Review of government projects, state-owned
\nenterprise projects, and private projects related to the
\ngovernment\/state-owned enterprises, which was intended primarily
\nto reduce the current account deficit in the balance of payments.
\n 4. Various efforts to boost exports and to provide incentives to
\nexporters to sell their foreign currency.
\n 5. A gradual reduction of interest rates and a loosening of
\nliquidity designed to stimulate the economy, including small and
\nmedium scale business and cooperatives.<\/p>\n
The above steps were implemented as a result of the limited
\ncabinet meeting on Sept. 3, 1997, the government statement to the
\nplenary session of the Indonesian parliament on Sept. 16, 1997,
\nand the decision of the cabinet meeting on Oct. 8, 1997. These
\nsteps were taken to increase the confidence of the international
\ncommunity in Indonesia. The government is optimist that market
\nconfidence can be restored in light of the fact that the
\nfundamentals of the Indonesian economy are in general sound.<\/p>\n
Although various programs and adjustment measures have been
\nintroduced by the government, nevertheless, as a member of
\ncertain international agencies including the International
\nMonetary Funds (IMF), the World Bank and the Asian Development
\nBank (ADB), Indonesia frequently consults with these agencies.<\/p>\n
Considering the international experience of the IMF, the World
\nBank and the ADB, and given that Indonesia is in need of
\ntechnical assistance, the government has invited these agencies
\nto review the various programs that have been, and will be,
\nimplemented by the government, so as to improve upon these
\nprograms. The IMF team, the World Bank and the ADB have been
\nengaged in this review process since Oct. 17, 1997.<\/p>\n
Programs have been formulated to cover actions in several
\nareas, including:<\/p>\n
a. efforts to restore the health of the financial sector<\/p>\n
b. Fiscal policy<\/p>\n
c. Monetary policy including exchange rate policy<\/p>\n
d. Structural adjustment, in the form of an extension and
\ndeepening of the deregulation program<\/p>\n
Considering the very broad scope of the program and the fact
\nthat it covers a number of economic aspects, the program can only
\nbe implemented over a three-year period. In its implementation,
\nit will b monitored tightly and will involve necessary reviews,
\nand for that reason Indonesia will be assisted by experts from
\nthe IMF, the World Bank and the ADB.<\/p>\n
Financial<\/p>\n
The restoration of the health of the financial sector
\nincludes:<\/p>\n
a. Banks, including private banks, government banks, and regional<\/p>\n
development banks<\/p>\n
b. Financial institutions<\/p>\n
c. Insurance and pension funds<\/p>\n
d. Capital market institutions such as mutual funds and
\nsecurities houses<\/p>\n
The program in the fiscal sector is basically aimed at
\nincreasing government revenue and reducing expenditure, and will
\nbe followed by an improvement of budget discipline so that during
\nthe 1997\/1998 fiscal year we will, at a minimum, succeed in
\navoiding a budget deficit. For the 1998\/1999 fiscal year and the
\nyears thereafter, we are targeting a budget surplus of 1 percent
\nGross Domestic Products (GDP). The increase in government
\nrevenue will be achieved through strict discipline in non-tax
\ngovernment revenue, in compliance with the law already ratified
\nby the parliament. Moreover, fiscal policy will be aimed at
\nreducing the current account deficit in the balance of payments
\nso that within two years it can be reduced to less than 3 percent
\nof GDP.<\/p>\n
As a result of diminished economic activity, economic growth
\nduring the 1997\/1998 and 1998\/1999 fiscal years will decline, but
\nthe growth rate is predicted to rise again to approximately 7
\npercent by the year 1999\/2000 and the years thereafter.<\/p>\n
The program in the monetary sector will basically continue
\npolicies already enacted by enhancing our level of caution so
\nthat the inflation rate can be maintained at a single digit.
\nInflation will be restrained by controlling liquidity and
\ninterest rates in order to both stimulate economic activity, on
\nthe one hand, and stabilize the economy, on the other.<\/p>\n
Objectives<\/p>\n
The fundamental objective of the structural adjustment program
\nis to increase national efficiency and the competitiveness of the
\nIndonesian economy. To accomplish this objective, the steps to
\nbe implemented, among others, include:
\na. Gradual reduction of import tariffs, including those on
\nchemical products, iron and steel, and fishery products, to 5 to
\n10 percent by the year 2003. Starting on Jan. 1, 1998, import
\ntariffs on a large number of chemical products will be reduced by
\n5 percent, while tariffs on fishery products will be reduced from
\n10-20 percent to 5 percent. Most tariffs on iron and steel will
\nalso be reduced starting Jan. 1, 1999.
\nb. Trade deregulation for various commodities, such as wheat and
\nwheat flour, soybeans, and garlic. Starting on Jan. 1, 1998,
\nthese commodities can be imported freely under general importer
\nstatus. Imports of soybeans and garlic will be subject to a 20
\npercent tariff and imports of wheat flour will be subject to a 10
\npercent tariff, to be reduced to 5 to 10 percent by the year
\n2003. To protect consumers, the government will temporarily
\nprovide a subsidy for wheat flour. Moreover, the administrative
\nretail price of cement will be eliminated in the near future.
\nc. Reduction of obstacles hindering exports, including export
\ntaxes, to be implemented in stages.
\nd. In line with government commitments to the World Trade
\nOrganization (WTO), the local content program for automobiles,
\nwhich provides special tariffs for automobile producers who
\nachieve high local content, will be eliminated by the year 2000.
\nWith reference to the national car project, the government has
\nagreed to implement the decision of the WTO.
\ne. In order to improve the efficiency of the state budget, the
\ngovernment will review investment and expenditure by the public
\nsector, including government expenditure for state-owned
\nenterprises and strategic industries. Meanwhile, the
\nprivatization will be continued, and will include the state-owned
\nbanks once merger of these banks is finalized.<\/p>\n
All of these programs will be presented by the managing
\ndirector of the IMF to the executive board, since they relate to
\nthe financial assistance from the IMF.<\/p>\n
To support the implementation of the program, the
\naforementioned international agencies, together with a number of
\ncountries, have stated their intention to provide financial
\nassistance, the amount and term of which have yet to be
\ndetermined. The amount of financial assistance will be announced
\nby each individual international agency and by each individual
\ncountry.<\/p>\n
The government firmly believes that these policies and
\nprograms will be effective in restoring the health of the
\nIndonesian economy so as to improve the welfare of the people and
\nalleviate poverty.<\/p>",
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