Government upbeat on new LoI by Thursday

JAKARTA (JP): The government expressed optimism to be able to complete by Thursday a new draft of the Letter of Intent (LoI) with the International Monetary Fund (IMF) to restart a stalled US$5 billion loan program.

State Minister for State Enterprises Laksamana Sukardi told reporters on Monday, after a meeting with the visiting IMF special mission, that the IMF team was very optimistic about completing the review of the country's economic programs.

"It (the IMF team) is very optimistic, the mood is very good, and hopes are high ... it is expected that by Thursday we will have completed the new LoI, which we'll send to Washington for approval," Laksamana said.

The team, led by the fund's Asia Pacific Deputy Director Anoop Singh, arrived on Sunday for talks with the new government over the next LoI, which essentially contains a set of the country's economic reform programs and targets.

Laksamana Sukardi said the first-day meeting with the IMF discussed progress made in finishing a set of "prior actions" for the LoI signing.

The IMF has required Indonesia to complete a set of prior actions before it could approve the new LoI.

Although the government, under the previous administration, has accepted these terms, there are now doubts whether it can meet them on time.

"We are reviewing our commitment (on the prior actions) to see whether it needs to be reviewed or not," Laksamana said.

Among the prior actions were the public announcement of results of the state's privatization program, the results of an independent review of major corporate debt restructuring deals, and reducing the primary money supply to Rp 108 trillion (about $12.6 billion).

According to State Minister of National Development Kwik Kian Gie, the government has met most of the targets stipulated under the prior actions.

"The only thing that's still dangling is the one on account 502," Kwik told reporters.

He was referring to a Bank Indonesia account containing funds for the government-sponsored blanket guarantee scheme for bank deposits.

Government officials said a shortfall of some Rp 30 trillion was weakening the blanket guarantee, which is vital to maintain public confidence in the banking sector.

But with the bond issue plan still in its early stages, the government is unlikely to come up with the shortfall quickly enough.

The IMF suspended its loan program to the country late last year amid signs that the previous administration was wavering in the implementation of an agreed reform agenda.

Securing the IMF's approval of the LoI would allow Indonesia to receive the next $400 million loan tranche from the fund.

IMF officials said the executive board was in recess and would not meet for discussion about Indonesia's loans until early September.

Turning to Indonesia's privatization target, Laksamana said he was giving consideration to lowering the target, with the IMF's approval.

According to him, catching up on the privatization target within the remaining four months was impossible.

The government had planned to raise Rp 6.5 trillion from its privatization program, but has gained nothing so far.

"I'm no superman, I am sure the IMF will understand this, if our reasons are strong enough," Laksamana said.

Despite these unresolved issues, Singh expressed optimism over signing a new LoI, but declined to estimate when the IMF could release its loan.

On Monday, his team also met with the Indonesian Bank Restructuring Agency (IBRA) to discuss the agency's second-half programs and targets.

Positive comments from the IMF propped up the rupiah to close at 8,550 against the U.S. dollar, from its Thursday close of 8,740. (bkm/tnt)