Government reform target ready for IMF review

Government reform target ready for IMF review

JAKARTA (JP): All economic reform targets stated in the latest
Letter of Intent (LoI), which has been agreed by the
International Monetary Fund (IMF), have basically been completed,
according to a senior government official.

Assistant to the coordinating minister for the economy, Dipo
Alam said on Friday that he was optimistic that all the reform
programs would be ready for the Fund's review before the end of
this month.

"We're working quickly on the LoI, but I'm afraid I can't name
any dates yet," Dipo told reporters after a meeting with the
government economic team responsible for the LoI.

The LoI contains a set of economic reform targets that the
government agreed to meet as a condition for obtaining loans from
the IMF.

The IMF has delayed the disbursement of its $400 million loan
tranche since December after the government failed to meet the
required targets. The loan is part of the Fund's $5 billion loan
package to help Indonesia cope with its worst ever economic
crisis.

Among the uncompleted targets were the divestment of
government shares in Bank Central Asia (BCA) and Bank Niaga.

Last year, the House of Representatives disapproved the
divestment plan, due to the then unfavorable market conditions.

But since then relations with the IMF have deteriorated and
legislators last week approved the plan. The government plans to
divest 40 percent of its ownership in BCA, and 51 percent in Bank
Niaga sometime in the middle of this year.

Dipo said that the government has resolved the divestment
issue as demanded under the LoI, although its implementation will
take several months.

He also dismissed several media reports which claimed that the
government was uncertain as to how much it planned to divest from
the two banks.

"We've made sure that we will stick to our agreement with the
House," he said.

Another reform target, he said, is the issuance of regulations
which would govern the creation of a contingency plan to cope
with the possible shortfall of the state budget.

Dipo said that the government was working on deciding how to
manage this contingency budget.

"We hope to issue a government regulation and an accompanying
ministerial decree (for the contingency budget) next week," he
said.

He added that the IMF additionally requested the government to
finalize government regulations regarding the regional financial
information system.

The regional financial information system is necessary to
consolidate the differing financial conditions of each region
under the decentralized fiscal budget.

Regions must report their budget status, and transaction flows
to central government in order to update a data base of every
region's financial condition.

"We're preparing a government regulation on the regional
financial information system, and we expect the President to sign
it by next week," he said.

Aside from targets outlined in the latest LoI, the IMF asked
for the amendment of central bank Law No 23/1999 to be addressed
without weakening Bank Indonesia's independence.

Dipo said that the government had agreed to the IMF's request
for a panel, comprising IMF and government-appointed experts, to
provide input on the government-proposed bill.

"We've told the IMF that we're ready to form that panel. We're
currently discussing with the House on the panel's mechanism," he
said.

Its formation stemmed from the IMF's concern that the new law
would weaken Bank Indonesia's independence, which was a key
reform target stipulated in the 1998 LoI.

Other concerns were that the move to amend the law was
politically motivated, in order to oust Bank Indonesia's current
governor Sjahril Sabirin.

Sjahril's job is still seen as politically strategic, despite
Bank Indonesia's guaranteed independence from government
intervention.

Legislators have urged that the new central bank law give
politicians the opportunity to hold the top position at Bank
Indonesia.

Dipo went on saying that IMF representatives on the panel
include a former central bank governor from Chile, and another
still active central bank governor from New Zealand.

This differs from an earlier government statement which said
the representatives were two former central bank governors from
Brazil and Canada.

According to Dipo, government representatives on the panel
would include two banking experts.

"All we have to do now is to find these experts," he said.

He said that he would meet with the IMF team on Friday evening
for further discussions on the LoI. (bkm)