Govt extends talks with IMF

JAKARTA (JP): The government said on Thursday it was still in talks with the International Monetary Fund (IMF) over the final draft of the fund-sponsored economic program, citing unresolved issues over the state budget.

The government had previously hoped to finalize the so-termed letter of intent (LoI) by Thursday.

State Minister for State Enterprises, Laksamana Sukardi said progress during negotiations with the IMF was going well, but required some "fine-tuning".

"The main concern and obstacle is the state budget, other issues just relate to its sustainability," Laksamana said, without elaborating.

A high-level mission of the IMF arrived in Jakarta on Sunday to draw up a new LoI that would pave the way for the resumption of the stalled US$5 billion loan program to Indonesia.

Laksamana declined to estimate a new target date for concluding talks with the IMF team.

Leading the team is the fund's Asia Pacific Deputy Director Anoop Singh, who said its planned stay in Jakarta ran until next Monday, but declined to say when the new LoI would be signed.

"We will continue the meetings, perhaps until Monday," he said, but played down suggestions a new LoI could be expected by then.

Asked how the meetings had progressed, he said, "there are no surprises, we are on track."

Last month, the fund dispatched the same team to Jakarta with the same mission, to draw up a new LoI.

It left without signing a deal with the previous administration as then president Abdurrahman Wahid was about to be dismissed.

Indonesia must secure a new LoI by early September at the latest, or else its $2.8 billion debt rescheduling deal with the Paris Club of creditor nations will become invalid.

Laksamana said that the state budget was the outstanding issue, especially concern over a number of missed revenue targets.

He said earlier the government would unlikely meet its privatization target of Rp 6.5 trillion (about $764.7 million) for this year.

With privatization proceeds amounting to zero thus far, Laksamana had to catch up with the target in four months' time.

"We want our targets to be more realistic, and avoid making promises we cannot keep," he said.

Base money

Bank Indonesia Governor Sjahril Sabirin said the IMF had considered allowing Bank Indonesia to relax its base money supply target.

The IMF, he said, understood Bank Indonesia's difficulty in meeting the target.

Reducing the base money supply to Rp 108 trillion is part of six prior actions Indonesia must meet before it can sign the LoI.

Current supply of base money stands at around Rp 111 trillion, according to Sjahril.

"I cannot disclose now whether it (the target) will still be a prior action or just a performance criterion," he said.

Bank Indonesia reduces the base money supply by raising its interest rates.

During last Wednesday's auction, Bank Indonesia three-month promissory notes (SBI) surged to 17.61 percent, from 17.30 percent last week.

Both banks and the corporate sector have been complaining about the high interest rate.

Sjahril said the recent hike in the SBI rates reflected conditions in the tight money market.

"I did not deliberately raise interest rates, market conditions demanded so," he said.

The higher the SBI rates, the more liquidity Bank Indonesia can absorb from the money market. Excess liquidity adds to pressure on the rupiah and inflation.

Although pressure on the rupiah has eased since the new government took over, the central bank remains worried about the still high inflation rates.

They have been hovering at double-digits over the past five months, mainly because the weaker rupiah increased import costs, and following the government's fuel and power price hikes.

Turning to the U.S. Federal Reserves' decision to cut its rates by another 25 basis points to 3 percent, Sjahril said he saw no need for Bank Indonesia to follow suit because Indonesia's condition was different.

"There is little connection between us and the Fed," he said.

Bank Indonesia Senior Deputy Governor Anwar Nasution said the central bank might lower rates if the economy showed improvement over a one month period.(bkm)

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