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)