Government to update IMF for next loan tranche

Government to update IMF for next loan tranche

Berni K. Moestafa, The Jakarta Post, Jakarta

The government plans to sign next week a letter to the
International Monetary Fund (IMF) updating it regarding reform
targets met since the fund's last review in February as a
prerequisite to release the next loan of some US$400 million.

Spokesman for the coordinating minister for the economy,
Mahendra Siregar said the letter was being finalized and is
expected to be sent to Washington sometime next week.

He said the letter could pave the way for the IMF's executive
board to agree to disburse its next loan tranche to Indonesia.

"Normally it takes about two weeks for the letter to pass the
IMF staff before the executive board can approve it," he told The
Jakarta Post over the weekend.

In January, the board approved some $341 million in loans, as
part of its three-year aid program worth $4.5 billion to
Indonesia.

Mahendra said that some dubbed the letter as the fifth of the
Letter of Intent (LoI), which outlines Indonesia's reform targets
and of which four have been signed thus far since 2000.

Like an LoI, the letter would be signed by the coordinating
minister for the economy, the finance minister and Bank Indonesia
governor.

But Mahendra was careful to add that the letter updated the
IMF on progress made, without committing to new targets as would
be the case in an LoI.

He said the updates concerned progress on reform targets under
the fourth LoI, which the government signed last December.

In February the fund sent a review team on a two-week mission
to evaluate LoI targets at a time the country was finalizing the
crucial sale of Bank Central Asia (BCA), and amid uncertainty
over a widely criticized debt extension plan for conglomerates.

The month after, the government sold BCA to U.S.-based
investment firm Farallon Capital Management and bowed to public
pressure to scrap the debt extension plan -- moves the IMF
responded positively to.

The House of Representatives recently approved an anti-money
laundering bill, marking the completion of another eagerly
awaited target.

The bill now awaits the signature of President Megawati
Soekarnoputri, who will return this week from her twelve-day
Asian trip.

However many of the fourth LoI targets have not been achieved.

By March, the government should have begun auctioning off
treasury bills to gradually replace Bank Indonesia's promissory
notes.

But the target hinges on the deliberation of a bill now held
up at the legislature.

Another crucial target left untouched is the settlement of a
disagreement between Bank Indonesia and the government on some
$13 billion in misused liquidity loans from the central bank.

The IMF wants to clear the issue over who should shoulder the
burden for the lost $13 billion -- a result of lax control over
bad bankers during the late 90s financial crisis.

A team of experts to settle the burden sharing issue as
demanded under the fourth LoI, has not yet been set up.

Other targets, the progress of which has not been reported,
include the formulating of plans for national audit and tax
arrears collection.

But in spite of these shortfalls, the IMF remains upbeat about
Indonesia, highlighting that the long stalled privatization
program had finally taken its course, and that macroeconomic
stability was on a better footing.

Last week, the U.S. government dispatched IMF official Randy
Quarles to Jakarta, in his words, to get a first-hand look at the
situation here.

Marking a two-day stopover in Jakarta, Quarles said he was
satisfied with the progress the government had made, and saw no
significant reasons not to disburse the $400 million in loans.

Quarles is a member of the IMF executive board.

His visit followed shortly after finance minister Boediono
returned from Washington to explain more or less what Quarles had
learned here.

With the executive board to convene sometime in mid April,
Mahendra said the letter to the IMF might lend Indonesia some
credence during debt rescheduling talks with the Paris Club.

Indonesia hopes to reschedule some $5.5 billion in debts
maturing this and next fiscal year, from creditor nations grouped
under the Paris Club.