September deadline for LoI 'difficult to meet'<\/p>\n
JAKARTA (JP): The September deadline for the signing of a new
\nlending agreement between the International Monetary Fund (IMF)
\nand the government may prove to be difficult to meet, as
\nuncertainty lingers over the life span of the current government,
\neconomists warned.<\/p>\n
University of Gadjah Mada economist Sri Adiningsih said the
\nimpending People's Consultative Assembly special session may
\nresult in a new lineup of economics ministers.<\/p>\n
\"It's only natural that the IMF would first want to ensure the
\ncommitment of the new team before they resume their lending to
\nIndonesia,\" she told The Jakarta Post over the weekend.<\/p>\n
She said the possible change in the government was most likely
\nthe reason why the IMF only went as far as agreeing on a draft of
\nthe lending agreement.<\/p>\n
The government initially expected to sign the final letter of
\nintent (LoI) by last week, however only a draft was completed.<\/p>\n
The final LoI will contain a set of economic reform targets,
\nwhich Indonesia must meet in order to obtain the fund's loan.<\/p>\n
Indonesia's poor record of meeting the targets contained in
\nthe current LoI caused the IMF to freeze a US$400 million loan
\ntranche last December.<\/p>\n
The government and the IMF have said their priority is to sign
\na new LoI before the Paris Club meeting in September.<\/p>\n
Failure to do so would put at risk the debt rescheduling
\nagreement between Indonesia and its sovereign creditors under the
\nParis Club. The meeting is slated for the first week of
\nSeptember.<\/p>\n
The Paris Club agreed to reschedule $2.8 billion in debts this
\nyear, on the condition that the government sign a new LoI with
\nthe IMF by March. Because the LoI was not signed, the group is
\nnow free to collect the debts anytime this year.<\/p>\n
There are concerns that the IMF will delay discussion of the
\nLoI until after a new government is formed, Sri said.<\/p>\n
The Assembly's special session in August looks certain to lead
\nto the removal of President Abdurrahman Wahid.<\/p>\n
Sri said that should a new government emerge, the IMF would
\nlikely send a team to Jakarta to seek a commitment on the new
\nLoI, in what could be another time-consuming process.<\/p>\n
\"The IMF's stance will depend on the lobbying power of the new
\neconomics team,\" she said.<\/p>\n
Sri added that the new economics team should be able to pick
\nup immediately the work of its predecessors.<\/p>\n
And there are further time constraints, with the IMF scheduled
\nto take a recess starting next week until Aug. 22.<\/p>\n
Nonetheless, Sri said that even if Indonesia missed the
\nSeptember deadline, it would not necessarily spell disaster.<\/p>\n
\"I don't think September is a set target, it's negotiable. If
\nthe government can come up with the right reasons, the Paris Club
\nwill understand,\" she said.<\/p>\n
However, economist Dradjad Wibowo of the Institute for the
\nDevelopment of Economics and Finance said neither the IMF nor the
\ngovernment could afford to miss the deadline.<\/p>\n
\"If missing the deadline leads to a negative note from the
\nParis Club members, this will be counterproductive for the IMF
\nitself,\" he warned.<\/p>\n
He said the country members of the Paris Club would want to
\nprevent providing reserves for writing off Indonesia's bad debts.<\/p>\n
But should they demand payment, it would send Indonesia
\nteetering toward bankruptcy, he said.<\/p>\n
\"Higher taxes and another fuel price hike to raise more money
\nare out of question,\" Dradjad said.<\/p>\n
Defaulting on the payments on domestic bonds is also unlikely
\nbecause that would harm the banking sector, whose earnings rely
\non government bonds, he added.<\/p>\n
Dradjad said this situation would tempt Indonesia to default
\non the payments on its foreign debts, a move the IMF would not be
\npleased with.<\/p>\n
\"But this would be the best of the bad options,\" he said.<\/p>\n
Separately, Minister of Finance Rizal Ramli continued with his
\nanti-IMF rhetoric, urging for reforms in the institution.<\/p>\n
\"The IMF has misdiagnosed (economic illnesses) in many
\ndeveloping countries, causing their crises to deepen,\" Rizal was
\nquoted as saying by Antara news agency during a book launch last
\nFriday.<\/p>\n
He said the IMF's most damaging mistake in Indonesia was the
\nimposition of a \"super-tight\" monetary policy, which led to the
\ncountry's banking crisis.<\/p>\n
Rizal has been lashing out at the IMF since he took his
\nprevious post as the coordinating minister for the economy.<\/p>\n
His stance contributed to the friction between the IMF and the
\ngovernment following the suspension of the IMF loans. (bkm)<\/p>",
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