Dorodjatun makes new promises to IMF as Cabinet cracks

Dadan Wijaksana The Jakarta Post Jakarta

Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti and Finance Minister Boediono have made a new economic reform agreement with the International Monetary Fund (IMF), despite signs that the Cabinet is cracking due to a disagreement on key economic policies sponsored by the fund.

Under a new letter of intent (LoI) to the IMF, the government promised to push ahead with several reform measures, including the sale of a number of banks before the end of this year.

The LoI was also signed by Bank Indonesia Governor Sjahril Sabirin.

The signing of the new LoI would pave the way for the disbursement of the IMF's next US$340 million loan tranche to the country, according to a media statement issued by Dorodjatun's office.

The fund is making a three-year $5 billion packaged loan to Indonesia.

The IMF board of directors in Washington is scheduled to convene within a few weeks to approve the new LoI.

The new reform commitment comes in the light of intensifying disagreement between Cabinet members, particularly between Dorodjatun, on one side, and State Minister of National Development Planning Kwik Kian Gie, on the other.

Kwik, former chief economics minister under the previous administration of Abdurrahman Wahid, has recently started a campaign to persuade the government to discontinue the IMF program here when it expires in November this year.

He argued that IMF programs were dangerous to the country, adding that the fund was acting more like a new colonial master.

Reports said that several Cabinet members and top politicians, such as People's Consultative Assembly Speaker Amien Rais, supported Kwik's stance.

But the government, through Boediono, has already extended the IMF program here for another year, to the end of 2003. The extension was part of conditions set by the Paris Club of creditor nations in exchange for a sovereign debt rescheduling facility.

The government obtained in April a rescheduling facility covering some $5.4 billion in sovereign debt due to mature this year and next.

Kwik, via the mass media, accused Boediono of not consulting the Cabinet when extending the IMF program.

Dorodjatun, however, said the plan had been discussed at a Cabinet meeting.

He also gave a lengthy explanation to the media that the IMF was still needed to help the country find its way out of its current economic difficulties.

The presence of the IMF, whose loan goes to the central bank to supplement the country's foreign exchange reserves, is seen as important to help revive the confidence of foreign investors and creditors in the country, the economy of which was badly hit by a combination of the 1997 regional economic crisis and political crisis at home.

LoI contains a set of reform targets under which the IMF measures the country's economic reform progress, with failure to comply leading to a halt in its lending program. The new LoI is the country's sixth.

In the letter, the government said all the end-of-March quantitative performance criteria had been achieved, with the exception of the targets for the state budget deficit, as the implementation of fiscal policy had remained prudent under the program.

The budget deficit in the first quarter of this year was higher than predicted, totaling Rp 5.6 trillion, or way above the target of Rp 2.7 trillion, due to lower-than-expected revenues as a result of the massive flooding that took place in the first two months of the year.

Nevertheless, the government would remain resolute to bring the budget deficit back on track within the target of 2.5 percent of gross domestic product (GDP), as revenues from dividends and other non-tax incomes were expected to increase in the remainder of the year.

On the monetary policy front, it said that the central bank would maintain a cautious stance in the period ahead, to be consistent with its main objective of bringing inflation down to single digits.

Inflation had been manageable over the last three months, a development that the letter hailed as encouraging, in line with the upward trend of the rupiah against the dollar and a slow growth of base money.

This forced the central bank to gradually lower its benchmark interest rate, from about 17 percent in January to about 15 percent in recent weeks.

The government also reaffirmed plans to sell majority stakes in Bank Danamon next month and Bank Lippo by the end of the year. The sale of a 30 percent stake in state-owned Bank Mandiri would be made in the third quarter.

The government will also sell a stake of up to 71 percent in Bank Niaga by mid-September.

The LoI also said that tough action would be taken against former bank owners who had refused to repay billions of dollars in bailout funds.