Govt to get more IMF cash
Berni K. Moestafa, The Jakarta Post, Jakarta
The government signed its fourth letter of intent (LoI) to the International Monetary Fund (IMF) on Thursday, pledging a new round of economic reform targets as the global economy takes a turn for the worse.
With a new LoI at hand, the IMF may disburse its US$360 million loan tranche to Indonesia, once it is approved by its executive board at a meeting that will be held in the middle of next month.
The LoI contains a set of economic reform targets, and is, with 53 points, more elaborate than the third one, which had only 35.
Overall, the LoI's macroeconomic targets fall in line with those under the 2002 state budget.
One key target is lowering the budget deficit to 2.5 percent of gross domestic product (GDP), as against this year's 3.7 percent.
"The strategy for 2002 has been developed within the context of a significant deterioration in the global economic outlook; it also recognizes that much remains to be done to restore confidence among domestic and foreign investors," according to the LoI, which was addressed to the IMF's managing director Horst Koehler.
Signing the LoI were Coordinating Minister for the Economy, Dorodjatun Kuntjoro-Jakti, Minister of Finance Boediono, and Bank Indonesia Governor Sjahril Sabirin.
The downturn in the global economy may impair efforts to comply with the LoI, putting at risk targets such as privatization proceeds of Rp 6.5 trillion (about US$643 million).
With greater uncertainty on the global front, foreign capital is likely to stay scarce, especially if the investment climate here remains sour.
A weak global market would also eat into the country's export revenue, hurting the rupiah while adding to inflationary pressure.
To achieve macroeconomic stability, the government has outlined a set of structural reforms.
"Structural reforms efforts will continue to focus on the core areas that impinge upon macroeconomic stability: financial sector reforms, privatization and asset recovery, and legal and governance issues," the LoI said.
One target is the establishment of an anticorruption commission (ACC) to lead the country's legal and judicial reforms.
The government will also establish a special office to tap large taxpayers, who collectively account for the largest proportion of tax revenue.
It further plans to raise fuel prices by an average of 30 percent starting next month, to eliminate what it said were poorly targeted energy subsidies.
"We feel these policies, once implemented, will strengthen the investment environment and enhance the growth prospects and employment prospects for Indonesia," the IMF's representative to Indonesia, David C. Nellor, said.
Thursday's LoI should have ushered the government into its last year of a three-year contract with the IMF.
Under that contract, the IMF has held prepared a $5 billion loan package on condition Indonesia followed the LoI targets.
The contract will expire next year, but the government said it had sought to extend it by another year to secure a debt restructuring deal with sovereign creditors.
Dorodjatun said the government would continue to draw from the fund's loans for at least until Indonesia's country risk rating improved.
A high-risk rating increases the cost of investing in this country. The worse the rating, the higher the premium a company must pay banks to cover the risk of the loans turning bad.
Some critics have urged the government to reduce its reliance on the IMF, citing the fund had meddled too much with microeconomic issues.
Columbia University economist and Nobel prize-winner Joseph E. Stiglitz said the fund should focus on short-term crises only.
"A program of more than two years ... is evidence of failure," he was quoted as saying last month by BusinessWeek online.
But Boediono said the LoI reforms targets had been drawn up in line with what the government thought the financial markets wanted.
Key targets under the fourth LoI
Dec. 2001: Collect Rp 27 trillion in IBRA proceeds Conclude tender process of bank BCA
Jan. 2002: Publish IBRA's schedule for quarterly asset recovery targets for 2002
Mar. 2002: Begin auction of treasury bills Finalize and implement burden-sharing deal between Bank Indonesia and government on abused liquidity loans
Jun. 2002: Start operation of large taxpayer directorate Produce report on 2001 local government finances Achieve at least half of privatization proceeds target of Rp 6.5 trillion Conclude majority sale of Bank Niaga Set up anticorruption commission
Jul. 2002: Implement new tax filing and payment systems at large taxpayer offices
Dec. 2002: Complete third round of special audits of state firms and adopt corrective actions