Government soon to complete reform targets

Government soon to complete reform targets

JAKARTA (JP): Coordinating Minister for the Economy, Finance
and Industry Kwik Kian Gie expressed optimism on Monday all
reform targets agreed to with the International Monetary Fund
would be achieved before Thursday's deadline.

"There are several items that we haven't completed yet under
the letter of intent, but we are sure that we can complete them
by July 20," Kwik said before attending the weekly meeting of
economic ministers.

Kwik said among the tasks that still needed to be completed
was the recapitalization of Bank Bali, which the government
announced late on Monday it would begin. The announcement came
following a meeting with the bank's former owner, Rudy Ramli.

The bank's recapitalization has been delayed due to a loan
scandal that erupted last year. The scandal centers on the
transfer of US$80 million under a questionable cessie agreement.

Other tasks outlined in the latest letter of intent (LoI) with
the IMF concern the recapitalization of Bank Negara Indonesia
(BNI) and Bank Rakyat Indonesia (BRI).

Kwik said the deadline on Thursday was the government's
internal deadline, and the disbursement of the IMF's loan would
depend on the approval of the fund's board.

Compliance with the LoI is prerequisite to obtaining the IMF's
loan package, which totals $5 billion, to finance the country's
economic recovery.

The government failed to meet this year's first LoI deadline
in April, causing a delay in the IMF's disbursement of $400
million. Indonesia obtained the funds after meeting the
requirements of a second LoI in May, but another failure to meet
the deadline would cause the delay of the third loan tranche,
scheduled for August.

Possible delay

Economist Arif Arryman from the consultancy firm ECONIT also
expressed optimism the government would meet the targets laid out
in the third LoI on deadline. However, he warned that rising
political uncertainty could prompt the IMF to delay its third
loan disbursement.

Arif was referring to the upcoming General Session of the
People's Consultative Assembly in August, during which President
Abdurrahman Wahid is expected to appear before the Assembly to
report on the progress he has made in leading the country.

Arif also said the President's intention to reshuffle his
Cabinet after the General Session was a good opportunity to
revise Indonesia's relation with the IMF, which he accused of
focusing more on Indonesia's debt repayment capacity rather than
the country's economic recovery.

According to him, the IMF was bound to the interests of donor
countries which needed assurances of Indonesia's capability to
repay its debts. "Economic policies such as those contained in
the LoI are inseparable from IMF's aim to raise our debt
repayment capacity," Arif said during a media conference.

To that aim, he said, the fund's LoI focused on a tight
monetary policy that restricted government spending. "This policy
hurts economic development .... The IMF is not overly concerned
with demands for a quick economic recovery."

Such a lack of attention, he said, was visible in the fund's
economic growth target, which was between 1 percent and 2
percent. "Only after protests from economists did they revise the
target to between 2 percent and 4 percent."

He also said the LoI was inadequate to stimulate economic
growth and lacked attention to creating job opportunities and
developing the agricultural sector, issues that effect
Indonesians at large.

He said that because the LoI did not contain any reform
programs that touched on these sectors, the IMF should refrain
from designing economic policies for industrial sectors.

He also said the IMF had failed to help stabilize Indonesia's
monetary condition, with the rupiah sharply depreciating.
Although the depreciation of the rupiah was mainly caused by
political uncertainty, he said, the fund should have learned from
past experience in South America, where it was shown that
political transitions were bound to cause sharp currency
fluctuations.

"The IMF should have from the beginning applied a monetary
policy that is more resistant to the volatile political
conditions," he said.

Arif said the IMF should have considered using a partial
currency control for Indonesia. "The IMF therefore must handle
the issues that fall under its core competence, which is
macroeconomics and monetary policies."

He said policies concerning industrial sectors, such as the
banking and telecommunication sectors, should not be included in
the LoI. "If we need assistance in reforming our industrial
sectors, we must refer to institutions that have competence in
these fields, like the World Bank or the Asian Development Bank."
(bkm)