Govt makes new pledges to IMF as Cabinet cracks

Govt makes new pledges to IMF as Cabinet cracks

Dadan Wijaksana, The Jakarta Post, Jakarta

Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti
and Minister of Finance Boediono have made a new economic reform
agreement with the International Monetary Fund (IMF), despite
signs that the Cabinet is cracking due to a disagreement on key
economic policies sponsored by the fund.

Under a new letter of intent (LoI) to the IMF, the government
promised to push ahead with several reform measures, including
the sale of a number of banks before the end of this year. The
LoI was also signed by Bank Indonesia Governor Sjahril Sabirin.

The signing of the new LoI would pave the way for the
disbursement of the IMF's next US$340 million loan tranche to the
country, according to a media statement issued by Dorodjatun's
office. The fund is making a three-year $5 billion packaged loan
to Indonesia.

The IMF board of directors in Washington is scheduled to
convene within a few weeks to approve the new LoI.

The new reform commitment comes in the light of intensifying
disagreement between Cabinet members, particularly between
Dorodjatun, on one side, and State Minister of National
Development Planning Kwik Kian Gie, on the other.

Kwik, former chief economics minister under the previous
administration of Abdurrahman Wahid, has recently started a
campaign to persuade the government to discontinue the IMF
program here when it expires in November this year.

He argued that IMF programs were dangerous to the country,
adding that the fund was acting more like a new colonial master.

Reports said that several Cabinet members and top politicians,
such as People's Consultative Assembly Speaker Amien Rais,
supported Kwik's stance.

But the government, through Boediono, has already extended the
IMF program here for another year, to the end of 2003. The
extension was part of conditions set by the Paris Club of
creditor nations in exchange for a sovereign debt rescheduling
facility. The government obtained in April a rescheduling
facility covering some $5.4 billion in sovereign debt due to
mature this year and next.

Kwik, via the mass media, accused Boediono of not consulting
the Cabinet when extending the IMF program.

Dorodjatun, however, said the plan had been discussed at a
Cabinet meeting.

He also gave a lengthy explanation to the media that the IMF
was still needed to help the country find its way out of its
current economic difficulties.

Meanwhile, Kwik repeated his criticism of the IMF on Wednesday
when he spoke at a forum to review Indonesia's commitment to the
Consultative Group on Indonesia (CGI).

He charged that the IMF had broken several agreements such as
that on the plan for a transparent and open tender for the
divestment of banks, including Bank Central Asia.

"Mr. Hubert Neiss, in the name of Deutsche Bank, lobbied to
assist the Farallon consortium to win (in the BCA divestment) and
this worked," Kwik was quoted by Antara as saying, referring to
the former IMF Asia Pacific director.

He said Indonesia's economic recovery would continue without
the help of the IMF.

He argued that the fund's bailout assistance could not be used
to finance anything before the central bank had run out of
foreign exchange reserves.

The presence of the IMF, whose loan goes to the central bank
to supplement the country's foreign exchange reserves, is seen as
important to help revive the confidence of foreign investors and
creditors in the country, the economy of which was badly hit by a
combination of the 1997 regional economic crisis and political
crisis at home.

LoI contains a set of reform targets under which the IMF
measures the country's economic reform progress, with failure to
comply leading to a halt in its lending program. The new LoI is
the country's sixth.

In the letter, the government said all the end-of-March
quantitative performance criteria had been achieved, with the
exception of the targets for the state budget deficit, as the
implementation of fiscal policy had remained prudent under the
program.

The budget deficit in the first quarter of this year was
higher than predicted, totaling Rp 5.6 trillion, or way above the
target of Rp 2.7 trillion, due to lower-than-expected revenues as
a result of the massive flooding that took place in the first two
months of the year.

Nevertheless, the government would remain resolute to bring
the budget deficit back on track within the target of 2.5 percent
of gross domestic product (GDP), as revenues from dividends and
other nontax incomes were expected to increase in the remainder
of the year.

On the monetary policy front, it said that the central bank
would maintain a cautious stance in the period ahead, to be
consistent with its main objective of bringing inflation down to
single digits.

The government also reaffirmed plans to sell majority stakes
in Bank Danamon next month and Bank Lippo by the end of the year.
The sale of a 30 percent stake in state-owned Bank Mandiri would
be made in the third quarter.

The government will also sell a stake of up to 71 percent in
Bank Niaga by mid-September.

The LoI also said that tough action would be taken against
former bank owners who had refused to repay billions of dollars
in bailout funds.