Govt eyes fresh IMF loans this year

Govt eyes fresh IMF loans this year

Berni K. Moestafa, The Jakarta Post, Jakarta

The government said it was upbeat about receiving an estimated US$400 million in new loans this year from the International Monetary Fund (IMF), based on the expectation that it would soon sign a new lending agreement with the Fund.

Finance minister Boediono said the government was in talks with a visiting IMF team for the drafting of a fourth Indonesia- IMF lending agreement, better known as a Letter of Intent (LoI).

"I'm optimistic because they (the IMF) will be staying here for about two weeks to review the LoI. But as we know, the disbursement will come after the LoI has been signed and approved," Boediono was quoted as saying by detik.com.

He forecast that the IMF would disburse its usual loan tranche of $400 million.

The IMF's loan tranche forms part of a $5 billion bail out package for Indonesia that is tied to a three-year economic reform program.

An IMF team arrived last week to review the current LoI and start discussions on the next one. Leading the team is the Fund's Senior Advisor for the Asia Pacific Department, Daniel Citrin.

So far, the government has signed three LoIs, the most recent one in August following an eight-month delay due to the slow progress of reforms.

Boediono said he was unsure whether the fourth LoI could be finalized within the next two weeks, reasoning that the talks were still at the preliminary stage.

"We'll complete our calculations and they (the IMF team) will bring the results back to Washington," he said.

"Then we can sign it (the LoI). About one or two weeks later it will be brought before the (IMF) committee for approval. Afterwards the loans can be disbursed," Boediono explained.

With less than two months left, the government is running short of funding to cover the expenditure targets set out in this year's state budget.

As a result, the government is looking at a mushrooming budget deficit, which was initially set at 3.7 percent of gross domestic product (GDP).

Constraints on the 2001 budget are one concern of the IMF team in its review of the current LoI, Boediono said.

The government's lagging behind in its privatization and asset disposal program threatens to cut short domestic deficit financing.

As yet, privatization proceeds have amounted to zero, while progress in asset sales is impeded by a sluggish market.

Elsewhere, external deficit financing is facing the axe due to loan preconditions the government cannot meet on time.

According to the World Bank, the undisbursed loans amount to about $900 million of the $2.6 billion pledged by creditor nations.

It remains unclear whether the government can unlock the loans through efforts to persuade lenders to ease some of the preconditions.

Short on receipts, the state budget is also seeing a surge in expenditure, partly as the weaker rupiah drives up the cost of servicing interest on domestic and foreign debts.

By contrast, tax collection is moving in line with budget targets, according to government officials.

The outlook for the oil and gas sector remains uncertain, however.

"If oil prices continue to fall, we won't have any more windfall profits," the president of the state oil and gas company Pertamina, Baihaki Hakim, told reporters.

This year's budget assumed an average oil price of $24 per barrel. As of October, the price stood at $25 per barrel, he said.

However, the profit margin of $1 per barrel comes at the cost of a lower than expected oil production level.

"The budget assumed an oil production level of 1.46 million barrels per day (bpd), but we've been able to produce only 1.3 million bpd," Baihaki explained.

The IMF said last week that the government may need to resort to spending cuts if it runs out of funding sources.