Government to sign new letter of intent with IMF

JAKARTA (JP): Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said on Wednesday the government would sign a new letter of intent with the International Monetary Fund (IMF) either on Friday or Monday.

Ginandjar said the letter would include new economic assumptions reflecting a faster than anticipated economic recovery.

Ginandjar said Indonesia would see economic growth of between zero percent and 2 percent in the 1999/2000 fiscal year, compared to the earlier forecast of zero growth in the previous letter of intent.

He also said inflation would be between 8 percent and 10 percent compared to the earlier estimate of 17 percent.

The signing of the new letter of intent will pave the way for the disbursement of another US$460 million of bailout money from the IMF. The IMF so far has disbursed some $9.5 billion of its more than $12 billion loan commitment.

The IMF's board of directors will meet at the end of this month, when they are expected to approve the latest disbursement. The IMF aid will be accompanied by the release of $500 million in loan under Japan's Miyazawa Plan.

Indonesia's economic indicators showed signs of recovery during the first quarter of this year. The economy expanded by 1.34 percent over the three-month period. Inflation in April was minus 0.68 percent, better than the 0.18 percent deflation in March. Interest rates declined from 36.50 percent to 29.99 percent as of Wednesday. The rupiah also has stabilized at Rp 8,000 against the U.S. dollar despite the lower interest rates.

The positive developments have prompted both the government and IMF Asia Pacific director Hubert Neiss, who is currently in Jakarta to review the country's economic reform programs, to express renewed optimism at a quicker than expected economic recovery.

Indonesia has been hard hit by the economic crisis which began in July 1997. The country suffered an economic contraction of more than 13 percent in 1998 coupled with hyperinflation and skyrocketing interest rates. Millions of people have lost their jobs and around half of the country's 200 million people have fallen below the poverty line.

Analysts, however, have warned that the first quarter developments do not necessarily indicate an economic turnaround.

They said that a successful June general election, the country's first multiparty elections after more than 30 years under the authoritarian rule of former president Soeharto, would be essential to ensure economic recovery.

While Neiss has openly applauded the government's economic reforms, a government source said Neiss was upset by the delay in restructuring the debts of the 20 largest debtors at state banks.

Under the previous letter of intent, the government promised to conclude a restructuring agreement with the debtors by April 30 or begin litigation.

However, the government extended the deadline to Aug. 30.

The delay raised speculation that the debtors, all well- connected businessmen, were being protected by the government.

The Indonesian Debt Restructuring Agency (IBRA) recently assumed over Rp 100 trillion in nonperforming loans from the seven state banks. It is estimated half of the bad loans are owed by the 20 largest debtors.

IBRA deputy chairman Eko S. Budianto said last week the government ordered the agency to return the management of nonperforming loans of less than Rp 25 million back to state banks.

This has raised speculation that the government is dragging its feet on its key economic reform programs.

Analysts said a delay in restructuring the debts of the 20 largest debtors would damage confidence in the economy and would threaten the success of the costly bank recapitalization program. (rei/prb)