Banking reform urged: IMF

Banking reform urged: IMF

Agence France-Presse, Jakarta

Indonesia has made further progress in implementing its reform program but still needs to focus on rebuilding its banking system and restoring investor confidence, the IMF said Monday.

Monetary prudence, supported by other reforms, contributed to continued exchange rate stability, a significant reduction in inflation, and a decline in interest rates, the International Monetary Fund said in a statement.

The IMF has been coordinating over US$5 billion in foreign aid to help Indonesia recover from the 1997-1998 Asian financial crisis.

The fund praised Indonesia's government for bringing the budget back on track after a temporary setback in the first quarter, while the targeted budget deficit of 2.5 percent of gross domestic product (GDP) appears within reach.

It said the government's planned 2003 budget is in line with the medium-term fiscal goals of reducing public debt to a sustainable level.

At the same time, the IMF said the government needs to reinvigorate several areas of its reform program by focusing on rebuilding the banking system and restoring investor confidence.

The statement said the IMF mission reached agreement with the government's economic team on policy priorities for the seventh review of the reform program.

"We aim to finalize understandings on a supplementary letter of intent for the review and to present it to the IMF's executive board as expeditiously as possible," it said.

A successful completion of the review by the IMF board will allow Indonesia to draw a further $360 million.

IMF said that during the two-week review the visiting team discussed the importance of progress in bank divestment and the merger of government-controlled smaller banks, strengthening the performance of state banks, and implementing plans for the privatization of state-owned companies.

The team said it also discussed the importance of building an attractive investment environment and the need for legal reforms including the establishment of the anti-corruption commission and adoption of amendments to the bankruptcy law.

Opposition to the IMF has been mounting in Indonesia, including within the government. Critics say it is setting economic policy, sometimes to the disadvantage of the nation.

But in a progress report to legislators recently, President Megawati Soekarnoputri confirmed Indonesia still needs to cooperate with the IMF to restore world confidence in its crisis- hit economy.