Govt extends deal with IMF to 2003

The Jakarta Post, Jakarta

The government said on Thursday it had decided to extend a contract with the International Monetary Fund (IMF) to obtain financial aid until 2003, in an attempt to secure financing for the state budget.

"On the contract with the IMF, which expires in December 2002, the government decided to extend its contract with the IMF by one year to 2003," Finance Minister Boediono was quoted as saying by Antara.

He said a contract extension was necessary to secure a debt rescheduling deal with creditor nations under the Paris Club.

"During next year's third Paris Club meeting, we want to reschedule debt payments for another 21 months, covering the period from April 2002 to December 2003. It is therefore better to have an IMF deal in place," he explained.

Separately, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said the IMF had yet to approve a contract extension.

With the current three-year IMF program, the government has access to a US$5 billion aid package.

In an effort to secure fiscal sustainability, the government has turned to foreign lenders for new loans or rescheduled old ones.

Deep in debt, the government must allocate a huge portion of its budget for local and foreign debt servicing.

Foreign debt amounts to some $72 billion and domestic debts Rp 600 trillion (about $56 billion), which was the price for bailing out the country's banking sector.

Analysts have warned of the budget exploding as a huge part of the Rp 600 trillion in recapitalization bonds will start maturing in 2004.

Rescheduling payments on foreign debts is seen as vital to secure short term fiscal stability which forms the basis of the country's economic recovery.

From 2002 until 2004, the government hopes to reschedule some $6 billion in debt from deals such as those that were done under the Paris Club.

The Paris Club, however, demands that Indonesia own a working IMF program to help it measure the country's economic reform progress. Disbursement of the IMF loans is tied to reform targets contained in the IMF Letter of Intent (LoI).

Lacking progress in reforms may result in the IMF suspending its loans to Indonesia, and the Paris Club canceling its debt rescheduling deal.