Government to sign new letter of intent with IMF
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)