Govt fears IMF may slow aid over BI law reform

JAKARTA (Agencies): Indonesia's Finance Minister Prijadi Praptosuhardjo said on Wednesday he was worried the International Monetary Fund (IMF) might further hold up loans after the House of Representatives and the government agreed to delay debate on a new central bank law.

Asked whether postponing the debate would add to the delay in releasing fresh IMF loans, Prijadi told reporters: "It could be. The IMF is...concerned."

House members said on Tuesday the debate would be postponed to March 12 because top officials involved were abroad.

The IMF withheld a $400 million loan to Indonesia in December, in part because it was concerned the new law would erode the independence of the central bank.

But a senior official in the economics ministry told Reuters later on Wednesday that rescheduling the debate should not affect the timing of the next loan disbursement.

"We (parliament and the government) agree we need to have a good Bank Indonesia law and to do that we need time, so in that respect we are in the same boat as the IMF," said senior official Dipo Alam.

"No I don't think there will be a (further) delay," he added.

Alam said the latest letter of intent -- which stipulates the economic targets Indonesia must reach in order to secure fresh IMF funds -- did not mention central bank law reforms.

"In our letter of intent there is nothing which specifically says anything about a Bank Indonesia amendment," he said.

The central bank has been in disarray since its governor, Sjahril Sabirin, is now under trial as a defendant in a corruption case related to the embezzlement of more than Rp 650 billion fund (US$68 million) at Bank Bali in 1999, known as the Bank Bali scandal.

Moreover, most of the central bank's board of governors resigned late last year, saying they no longer had the support of parliament. They will continue to carry out their duties until replacements are named.

Analysts have argued that the IMF's key concern is not so much the timing of debate on the planned amendments of the law but rather the urgent need to preserve the central bank's independence, especially in the current situation of political uncertainty.

The fate of the $400 million loan should become clearer within days, following top level talks between chief economics minister Rizal Ramli and IMF Deputy Director Stanley Fischer in Washington this week.

Alam said the talks were due to begin in Washington late on Wednesday.

The proposed reform of the central bank has been largely seen as motivated by personal vendetta against the central bank governor, Sjahril Sabirin, who early last year turned down Abdurrahman's request for him to resign.

The chorus of concern gained momentum this week when a group of four prominent foreign advisers to Indonesia's embattled President Abdurrahman Wahid urged him to drop the planned changes.

The advisers suggested to Abdurrahman on Saturday that the government-proposed amendments of the central bank law be withdrawn.

"We would recommend that you allow a period of review and reconsideration, including withdrawal of present legislation," the advisers said in a statement referring to the proposed- amendments to the law currently under House deliberations.

The current central bank law, which became effective in May 1999, secures Bank Indonesia's independence from the government's intervention.