BI vows to continue economic reforms

BI vows to continue economic reforms

MANILA (Dow Jones): Indonesia's top central bankers pledged
Saturday to push ahead with painful economic reforms but failed
to offer fresh details on some of the thorniest issues that
threaten to slow its economic recovery.

The officials, speaking during an Indonesian country seminar
at the Asian Development Bank in Manila, reiterated their
intention to restructure the ailing banking sector and weed out
piles of corporate debt that continue to bog down an economic
recovery. The seminar was lead by Bank Indonesia Governor Sjahril
Sabirin and Managing Director Miranda Gultom.

Together, they predicted that Indonesia's economy is close to
bottoming out and that a return to positive growth is likely in
the second half of 1999.

"The worst of the crisis is over.... We are turning the corner
towards solid and strong recovery," said Miranda, according to a
copy of her speech. "Some signs of recovery are increasingly
apparent, and the economy is expected to bottom out in the mid-
1999," added Sjahril in his speech.

The optimistic forecasts, they said, are rooted in gradually
improving economic fundamentals: falling interest rates, a strong
local currency and signs that foreign investment is starting to
pick up. These factors should allow Indonesia to show positive
growth in the third quarter, narrowing the economy's full-year
contraction to between 1 percent and 3 percent and setting the
stage for a stronger performance next year. Price pressure, they
noted, should also continue to fall, freeing up room for further
interest rate cuts in the months ahead.

Few details

Absent from the officials' comments, however, were new details
on a long-awaited government bond sale needed to finance state-
bank recapitalizations. They noted that as of January, there was
some US$72 billion in total external debts between banks and
private companies, highlighting the need to restructure and
write-off debts.

The officials didn't offer a clear timetable for writing down
these debts or for when the government bonds will be sold. They
also declined to put a final price tag on the initiative. And
they said they didn't know how much of the total debt figure is
held in the form of inter-company, or triangular, debts.

"The total cost of full bank restructuring will be
substantial, and will be announced later in the year," said
Miranda.

She noted the final cost may fall slightly if inflation and
interest rates continue to decline. Indonesia's rate of inflation
remained negative for the second straight month in April, falling
0.68 percent year on year.

Sjahril, according to a copy of his speech, said the
government is preparing to sell three different types of bonds to
recapitalize the banks. They include: variable-rate bonds, fixed-
rate bonds and index-linked bonds.

Miranda, meantime, pledged again to stick to "every aspect" of
the International Monetary Fund's program, including tight-money
policies, the break-up of monopolies and new legal reforms.

Later, in an official statement delivered during a separate
Indonesia country presentation, Sjahril didn't offer further
details on bank recapitalization plans, other that saying
macroeconomic stability and falling interest rates will make the
job easier.