Sat, 16 Dec 2000

Delay in IMF loan clarified

JAKARTA (JP): Coordinating Minister for the Economy Rizal Ramli said on Friday that the delay in the disbursement of the International Monetary Fund (IMF) loan was due to technical matters and not because the government had failed to implement key economic reform programs.

Rizal explained that discussions between the government and IMF officials to review the country's reform programs had to be extended until January due to year-end festivities.

Speaking to reporters at his office, he added that there was no serious problem with the IMF that would lead the fund to cancel its bailout loan to the country.

But Rizal also said the IMF loan was not very important for the country at the moment because of the current high foreign exchange reserves level, estimated at more than US$29 billion.

"The IMF loan is only for a second line of defense," he said.

Rizal was responding to reports that the IMF had postponed the disbursement of a $400 million loan tranche, initially scheduled for December, until February or March.

Reports said the IMF was disappointed with the government because of its failure in meeting several key economic reform targets.

The IMF promised in January last year to provide the administration of President Abdurrahman Wahid with some $5 billion in loans to help finance the country's three-year economic reform program. The fund has so far disbursed about $1 billion.

The IMF normally disburses its loan after its executive board convenes in Washington to review government performance in implementing key economic programs based on the input provided by the fund's review team in Jakarta.

The IMF review team was supposed to complete its work this month.

But before the review started, the IMF had been disappointed by several economic policies taken by the government.

For instance, the government decided in November to delay the sale of its ownership in publicly listed Bank Central Asia (BCA) and Bank Niaga until the first quarter of 2001 from the initial schedule of December this year.

The sale of BCA and Niaga is part of the government's key bank restructuring program. The proceeds were expected to contribute to the Rp 18.9 trillion ($2 billion) cash target to be raised by the Indonesian Bank Restructuring Agency (IBRA) to help finance the 2000 budget deficit.

So far IBRA has raised more than Rp 16 trillion.

The sale of BCA and Niaga was also expected to help revive investor confidence in the country's ailing economy.

Reports have also said the IMF was disappointed with the way the government plans to implement the regional and fiscal decentralization policy early next year.

The IMF has expressed concern that the new policy, which will boost the administrative power of provinces, regencies and mayoralties in managing their economic affairs, could prompt regional governments to jump into a borrowing spree to finance their administration, but which would then jeopardize the overall economy, as experienced in other countries like China.

The fund has demanded the government issue a ruling specifically forbidding the regional administrations to make borrowings, but the central government followed the advice only after IMF officials reportedly made threats to delay the loan disbursement.

Reports have also said the fund had been deeply concerned with the government's political maneuvering to amend the central bank law which many believe was mainly aimed at removing legal obstacles to oust Bank Indonesia Governor Sjahril Sabirin.

Meanwhile, the rupiah ended higher late on Friday at Rp 9,380 to the U.S. dollar compared to Rp 9,430 on Thursday, despite the media reports of the loan disbursement delay.

In the past, any prospect of possible delays in the disbursement of the IMF loan would affect sentiment and push the rupiah lower.

Dealers said state banks sold dollars on Friday, possibly on behalf of Bank Indonesia, which had vowed to continue market intervention to help the ailing rupiah and curb inflation.

A lower value of the rupiah would push inflation higher because of the high import content in the country's production system.

Dealers also said the market had expected possible delays in the disbursement of the IMF loan.

This is the second delay of a loan disbursement. The fund first delayed its loan to Indonesia last year during the administration of former president B.J. Habibie, which tried to slow down the implementation of several key reform programs due to the controversy surrounding the high-profile Bank Bali scandal. (rei)