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)