Govt to get more IMF cash

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