Government and IMF complete draft of new reform package

Government and IMF complete draft of new reform package

JAKARTA (JP): The government and the International Monetary
Fund (IMF) technical team completed on Tuesday a draft of a new
letter of intent (LoI), outlining a key economic strategy but
remaining tentative on policy details, especially sensitive
subsidy issues.

Coordinating Minister for the Economy, Finance and Industry
Kwik Kian Gie said on Tuesday that the draft would need the
approvals of both President Abdurrahman Wahid and the IMF board.

Speaking at a media conference after 10 days of negotiating
with the visiting IMF team, Kwik said the fund would return here
on Dec. 7 to resume negotiations and to finalize the LoI.

Once the government and the IMF board agree on the final
version of the LoI, the fund would resume lending to the country.

Kwik declined to disclose the contents of the draft of the new
LoI.

He said the first part basically contains an economic strategy
in the medium term, which includes a macroeconomic strategy,
restructuring policy, redevelopment of economic institutions and
improvement in natural resources management.

The second part, he added, stipulates macroeconomic policies
for the remainder of the current fiscal year and for the next
which includes the fiscal policy and social safety programs,
monetary and exchange rate and balance of payments policies.

Kwik said the third part contains restructuring policies for
the 1999/2000 and 2000 fiscal years, including structural and
trade policies and banking reforms covering banking management,
asset recovery, restructuring of state banks and nationalized
banks.

Kwik added that the remaining part covers corporate
restructuring, a privatization program, energy policy and
agriculture policy.

Separately, a spokesman for the IMF said it intended to
finalize the letter of intent by late December or early January,
in time for the government to prepare its budget for the next
fiscal year starting in April 2000.

The two parties signed the last LoI in late July but relations
between the two deteriorated, and the IMF postponed its regular
review of Indonesia following the failure of the previous
administration of B.J. Habibie to satisfactorily handle the Bank
Bali scandal.

But the current administration, formed late last month,
managed to mend relations with the IMF after publicizing an audit
by PricewaterhouseCoopers on the bank scandal.

The IMF, which is organizing a US$43 billion bailout for the
crisis-hit economy, has so far disbursed more than $10 billion
out of its $12.3 billion commitment to the fund.

A government source told the Jakarta Post that one of the
major issues which had not yet been resolved was related to the
government's future policy on subsidies.

"We don't know yet what the World Bank has in mind," the
source said.

World Bank country director for Indonesia Mark Baird declined
to comment.

Finance minister Bambang Sudibyo said the government was
determined to gradually abolish the subsidies.

He told the House of Representatives on Monday that the
government would have to allocate some Rp 40 trillion (US$5.7
billion) next fiscal year for fuel, electricity, medicine and
food subsidies if the prices of some basic commodities were not
raised.

It is not yet clear, however, how the government would go
about reducing subsidies as many legislators have already opposed
the idea.

Visiting IMF senior official Anoop Singh said although the
subsidies would gradually be reduced, it was crucial that low-
income households do not suffer.

The source also said the government had not yet agreed on the
scale of the planned import tariffs on rice and sugar.

"We're planning to impose between 30 percent and 40 percent
tariffs. But it's not yet decided," the source said.

The government has IMF's approval for reimposing import
tariffs on rice and sugar, which were lifted a few months ago to
protect local farmers.(rei)