Govt expects IMF team here later this week

JAKARTA (JP): The government said it expected a team from the International Monetary Fund (IMF) here later this week to start working on a new letter of intent (LoI) that would pave the way for the disbursement of its long delayed US$400 million loan.

"The latest progress means that hopefully we'll start working with the IMF here by next week weekend," Coordinating Minister for the Economy Burhanuddin Abdullah said on Saturday.

He was talking to businessmen during a meeting with the Indonesian Chamber of Commerce and Trade (Kadin).

Burhanuddin said the IMF team would work out the next package of reforms on Saturday and Sunday.

An LoI sets out a number of economic reform program targets that Indonesia and the IMF agree upon. Indonesia must meet these targets as a condition for the disbursement of IMF loans.

The Fund has pledged a $5 billion financial aid package for Indonesia under a three-year economic reform program starting in January, 2000.

Burhanuddin said the signing of a new LoI might prove to be more important than the disbursement of the IMF's loan itself.

"The IMF is like a locomotive. What's vital for us are the wagons lining up behind the IMF," he said.

Most members of the international financial community use the rigid economic reform program drawn up by the IMF as a benchmark for dealing with Indonesia.

The absence of a new LoI has put at risk the Paris Club agreement under which Indonesia's creditors agreed last year to reschedule the payment of $5.8 billion in sovereign debts. The Paris Club, which groups some of Indonesia's major creditors, is linking the implementation of the deal to the signing of an LoI.

If no LoI has been signed, Indonesia may be forced to make debt payments, which economists say would seriously threaten the survivability of the 2001 state budget.

Even without the agreement falling part, Indonesia is already struggling to abide by the 2001 budget deficit target of about 3.7 percent of gross domestic product (GDP).

The rupiah's persistent weakness and rising domestic interest rates have threatened to cause the state budget deficit to widen to the dangerous level of 6 percent of GDP.

The IMF team's arrival could also signal the end a difficult spell in its relations with Indonesia.

President Abdurrahman Wahid has said he appointed Burhanuddin as coordinating economic minister last month to improve relations with the IMF, which have been put to the test several times under previous economic chief minister Rizal Ramli, who has now become finance minister.

Rizal has had a number of run-ins with the IMF. In his first days as coordinating minister, Rizal pushed the IMF into renegotiating the LoI, demanding more flexible targets.

Later he described the Fund as being too pushy in its dealings with Indonesia.

But it was not until last December, when the government shelved the divestment of Bank Central Asia and Bank Niaga, that the IMF showed its displeasure.

The Fund suspended its loan program, reasoning that Indonesia was wavering on its reform targets, of which the divestment of the two banks were a part.

But in April, the IMF sent a team to review Indonesia's progress as a precursor to the signing of a new LoI.

However, there was a serious disagreement at that time over the government's proposal to amend the Central Bank Law, which the IMF warned would undermine the bank's hard won independency.

Burhanuddin did not say when he was expecting to sign the new LoI with the IMF.

"We want to work fast because we need to anticipate the special session," he said, referring to the People Consultative's Assembly (MPR) special session slated to be convened on Aug. 1.

But when asked later by reporters whether he was expecting a new LoI before August, Burhanuddin said the government was not linking the LoI with the country's political agenda.

The MPR special session is almost certain to impeach President Abdurrahman over his alleged involvement in two financial scandals and his perceived incompetence to running the country. The MPR is the country's highest law-making body.

Some analysts have said that the IMF was reluctant to sign the next LoI before the special session. According to them, the Fund may want political assurances that a change of leadership will not alter the economic reform program underway. (bkm)