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)