Government urged to renegotiate IMF reform targets

Government urged to renegotiate IMF reform targets

JAKARTA (JP): As the deadline for securing a deal with the
International Monetary Fund (IMF) looms, economists have urged
the government to renegotiate some of the economic reform targets
they have said are impossible to meet under the current
circumstances.

Economist Sri Adiningsih of Yogyakarta-based Gadjah Mada
University expressed particular concern over the IMF's request to
issue extra government bonds for financing the blanket guarantee
scheme on banks.

"The IMF must consider revising some of its programs,
including the one on account number 502, since it requires a lot
of funds and is difficult to meet under the current situation,"
she told The Jakarta Post.

The bonds, the proceeds of which would be kept under a Bank
Indonesia account known as account 502 to finance funding
shortfalls for the bank guarantee scheme, should be issued later
this month as a prerequisite for an IMF deal.

Sri warned that issuing the extra bonds, initially estimated
to be worth around Rp 30 trillion (US$3.4 billion), would worsen
Indonesia's debt burden.

The government previously issued some Rp 430 trillion worth of
bonds to help finance the country's bank recapitalization
program. The state budget is under severe pressure to cover the
bond coupons.

An IMF special mission, led by deputy director for Asia
Pacific Anoop Singh, arrived in Jakarta Sunday to try and strike
a new economic reform agreement with the country's new
administration. Sources said the IMF team would begin talks with
the government on Monday.

The IMF executive board would then convene in the first week
of September to decide whether to approve the reform program.
The approval would allow the disbursement of the Fund's next $400
million loan tranche, which was put on hold late last year amid
signs that the previous administration was wavering with
implementation of the agreed reform agenda.

The IMF's support is crucial to help revive investors'
confidence in the ailing economy, and to obtain a debt
rescheduling facility from the Paris Club of creditor nations,
which will convene next month.

With time running out, the government has yet to hammer out
details of the bond issue plan and consult with legislators about
it.

Under the blanket guarantee scheme, launched in 1998 at a time
when confidence in local banks was severely damaged, the
government would cover all obligations of closed-down banks,
including depositors' money. As some banks may have to be closed
down later this year due to their inability to meet the minimum
capital requirement, the government will have to pump more money
into the Bank Indonesia account.

Last week, President Megawati Soekarnoputri appealed for a
"breathing space" in meeting some commitments that Indonesia has
made with foreign donors.

She said that revising some of the past deals should be
understandable, given that they had been difficult to meet.

Economist Dradjad H. Wibowo said if Megawati wished to
prioritize the nation's economy and the creation of more jobs,
she had to strike a compromise with the IMF.

"It's very likely that they (the IMF) will again demand that
the budget deficit is limited to 3.7 percent of gross domestic
product (GDP) next year ... that's impossible without burdening
ordinary people," he said.

The 2001 state budget also assumes a deficit target of 3.7
percent of GDP.

For next year, Dradjad estimated Indonesia would have to pay
out a hefty $10.8 billion in foreign debt repayments, plus
another Rp 70 trillion in local repayments.

Unless the economy could grow by about 22 percent next year,
he said, Indonesia would have to resort to another fuel price
hike of up to 130 percent, plus higher income taxes, to contain
the budget deficit.

Separately, economist Umar Juoro urged the government to
negotiate with the IMF so that it focused only on macroeconomic
matters.

Also, the fund ought to refrain from imposing timetables on
the sale of state assets, and leave it to the government, he
said.

He said the IMF's meddling with the schedule of asset sales
had allowed buyers to seek a low price, as they knew the sales
deadline.

The government has planned to raise around Rp 6.5 trillion in
cash this year from the privatization of around 16 state
companies, but so far no proceeds have been obtained.

The sale of various assets under the control of the Indonesian
Bank Restructuring Agency, with the target of raising Rp 27
trillion, has also been moving slowly.(bkm/03)