Govt to submit new letter of intent to IMF soon

Govt to submit new letter of intent to IMF soon

JAKARTA (JP): The government will submit a new letter of
intent to the International Monetary Fund (IMF) immediately after
the announcement of bank closures on Saturday, Coordinating
Minister for Economy, Finance and Industry Ginandjar Kartasasmita
said on Wednesday.

Ginandjar said that completing the new letter of intent on
economic reform would pave the way for the disbursement of
another US$1 billion from the IMF.

"We're going to submit a letter of intent to the IMF after the
move on bank closures as part of the recapitalization program,"
he said following a Cabinet meeting at Bina Graha presidential
office.

"And we expect the IMF board will approve the disbursement of
a further US$1 billion to Indonesia at its upcoming meeting," he
said.

The disbursement of the aid depends on whether the IMF's board
of directors approves Indonesia's letter of intent, which will
contain a progress report of the country's economic reform
programs and its future economic agenda.

The IMF is organizing a $43 billion bailout fund to help
finance the country's economic reform programs, which are
designed to lift the country out of the current economic crisis.
The fund has already released around $9 billion of the $11.3
billion it has committed to the country. It has promised to
provide a further $1 billion at its next board of directors
meeting in Washington.

The IMF director for the Asia Pacific, Hubert Neiss, arrived
in Jakarta on Tuesday to assist the government in drafting the
new letter of intent.

Government officials said that the focus of discussions with
Neiss would be the bank recapitalization program.

Neiss expressed dissatisfaction last week over the
government's decision to delay the announcement of the bank
liquidations.

Ginandjar announced at the last minute that the bank closures,
scheduled for Feb. 27, would be delayed for at least two weeks.

This raised speculation that the government was catering to
the wishes of well-connected bankers by giving them the
opportunity to save their banks from liquidation.

The government previously said that some 40 ailing banks would
be liquidated.

"We expect that there will be no further postponements," Neiss
told the Kompas daily in Washington last week.

He stressed that any further delays would have a negative
impact on the economy by causing confidence in the country's
economy to dwindle further.

The government is expected to announce the bank closures and
other steps in the bank recapitalization program on Saturday.

Restructuring the country's more than 200 commercial banks is
seen as crucial for the country's economic recovery.

Under the government's bank recapitalization program, up to 80
percent of the funding required for the recapitalizations will be
provided by the government through the issuance of bonds. The
remaining 20 percent will be provided by the banks' shareholders.
The overall cost of the recapitalization program is estimated at
more than Rp 300 trillion (over $35 billion).

The interest on the government bonds for the 1999/2000 fiscal
year beginning in April will amount to Rp 34 trillion, of which
Rp 17 trillion will be covered by the state budget. The remaining
Rp 17 trillion will come from the sale of assets belonging to
liquidated banks.

The recapitalization program is designed to lift the capital
adequacy ratio (CAR) of banks to a minimum level of 4 percent.

CAR is the ratio between a bank's capital and risk-weighted
assets.

Banks eligible for the recapitalization program are those
which have CARs of between minus 25 percent and less than 4
percent and which have submitted an acceptable business plan.
Banks with CARs lower than minus 25 percent or which have failed
to meet other requirements to join the recapitalization program
will be closed down. (rei/prb)