Fri, 31 Jan 2003

Govt to get $450 million from IMF

Dadan Wijaksana, The Jakarta Post, Jakarta

Following two weeks of discussion, the government and the International Monetary Fund (IMF) wrapped up on Thursday the country's new economic reform programs, outlined under the eighth letter of intent (LoI), to clear the way for the disbursement of some US$450 million in IMF loan.

Under the reform programs, the government must increasingly focus on speeding up growth and making significant inroads into reducing poverty and unemployment, the fund said in a media release.

It also added that there was agreement on overriding priorities -- consolidating gains in macroeconomic stability, strengthening public debt sustainability over the medium term, continuing progress in restoring a sound banking sector and improving the investment climate.

"With strong implementation, the mission team believes these policies will help attain the overarching goals of boosting economic growth and reducing poverty in Indonesia," the statement said.

Consequently, enhancing the investment climate through legal reforms would form a major part of this year's program.

Although successful in stabilizing the country's macroeconomic indicators, progress in reforming its judiciary -- one of the main prerequisites for returning confidence to investors -- has been slow.

As a result, investment, both from foreign and domestic sources has remained scarce.

Consequently, this has hampered efforts to accelerate economic growth. If this continues, the economy would only grow at a mediocre level.

The economy is targeted to grow by around 4 percent this year, which is deemed insufficient to absorb rising unemployment. New jobseekers alone are estimated to reach 2.5 million annually.

The LoI contains a set of economic targets and a reform agenda that must be completed within a certain period of time by the government in exchange for the IMF money.

It will be presented to IMF management for approval before being finalized and signed. The letter will then be submitted to the IMF's executive board for approval.

The last disbursement, amounting to $365 million, was made in December to bring the total loans the country has taken out so far to around $3 billion, from a total loan package of $4.8 billion agreed between the government and the IMF in 1999.

This means that $1.8 billion is left from the program, slated to expire this year.

The government is under pressure not to extend the IMF program on the grounds that the IMF's medicine has failed to cure the country's ailing economy.