Debt deal may fall if IMF-RI ties worsen

Debt deal may fall if IMF-RI ties worsen

JAKARTA (JP): Finance minister Prijadi Praptosuhardjo
acknowledged on Monday that the Paris Club of sovereign creditors
could cancel the rescheduling of Indonesia's official debt if the
government failed to reach a new agreement with the International
Monetary Fund over the country's economic reform program.

But Prijadi was quick to say that the government would work
hard to avoid such a scenario from happening.

"There are concerns that if relations with the IMF are not
good ... the Paris Club (debt rescheduling) may also be
canceled," he told reporters following a meeting with senior
economics ministers.

"(But) we'll make efforts to avoid that ... We'll work hard to
reach agreement with the IMF," he added.

A cancellation of the Paris Club debt rescheduling agreement
would have severe consequences for the state budget and the
overall economy.

The government reached an MOU agreement with the Paris Club's
19 sovereign creditors in April 2000 to reschedule some US$5.8
billion in Indonesia's sovereign debt that will mature between
April 2000 and March 2002. The debt principals were rescheduled
to 20 years.

Around $2.8 billion of the total debts rescheduled would
originally mature this year.

But there has been concern that the Paris Club might cancel
the rescheduling of the $2.8 billion debt if the IMF continued to
delay its review of the country's economic reform program.

A source said that this concern emerged during a meeting last
week between Coordinating Minister for the Economy Rizal Ramli
and Bank Indonesia.

"The primary potential obstacle to the implementation of the
Paris Club MOU is the delay in the IMF review," the source said.

He said that if the delay continued without a clear time
limit, it might prompt the chairman of the Paris Club to decide
not to continue with the restructuring of the debt.

"The Paris Club may make the decision later in April," he
said.

He explained that if the Paris Club canceled the debt
rescheduling agreement, the government would be forced to repay
the $2.8 billion debt, and if the government defaulted, it could
trigger cross-defaults on other debts.

He said that the government had until the end of March to
conclude a new deal with the IMF.

The IMF has promised to provide around $5 billion in loans to
the current administration to finance a three-year economic
reform program. The Fund has so far disbursed around $1 billion.

But relations with the IMF worsened after the Fund delayed the
disbursement of its third $400 million loan tranche last December
due to concerns over government-proposed amendments to the
central bank law, delays in the key sales of government stakes in
Bank Central Asia and Bank Niaga, and the issue of fiscal
decentralization.

The Fund will only disburse the loan after it completes its
review of the country's economic reform program and if the IMF
board approves the review. But it is not clear when the review
will start.

Critics have said that the actual objective of the planned
amendment of the central bank law is solely to bring about the
dismissal of the bank's current board of governors at the expense
of its independence.

The IMF has also insisted that the government issue a clear-
cut regulation banning provinces and regencies from embarking on
a borrowing spree following the coming into effect of the new
autonomy law.

Rizal is scheduled to meet with top IMF officials in
Washington on Tuesday to discuss the progress of the IMF reform
program in Indonesia.

Last week, Rizal complained that the IMF was pressing too
hard, saying it was difficult to implement every reform while the
country was going through its complex transition to democracy.

Meanwhile, Dipo Alam, a senior aide to Rizal, said on Monday
that the government expected the IMF review team to arrive in
Jakarta later this month or early next month to start the review.

Dipo said that the review was expected to be completed before
the end of March.

Separately, President Abdurrahman Wahid said that he had
written a letter to IMF Managing Director Hoerst Kohler defending
the government plan to change the current central bank
management.

"I have sent a letter to Hoerst Kohler in which I explained
the need for a change of management at the central bank,"
Abdurrahman said at the weekend. (rei)