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.