Govt's letter of intent to the IMF

Govt's letter of intent to the IMF

JAKARTA (JP): This is the full text of the latest letter of
intent from the government of Indonesia, signed by Coordinating
Minister of the Economy, Finance and Industry Ginandjar
Kartasasmita, to the International Monetary Fund's Managing
Director Michel Camdessus.

Dear Mr. Camdessus,

1. Since late last year, we have been implementing a reform
and stabilization program, supported by the Fund under a three-
year stand-by arrangement. This program was initially outlined in
a Memorandum of Economic and Financial Policies (MEFP), attached
to the October 31, 1997, letter sent to you by the Minister of
Finance and the Governor of Bank Indonesia. It was then
reinforced in supplementary MEFPs sent to you on January 15 and
April 10, in connection with the first review, which was
completed on May 4.

2. In the period since then, despite firm policy
implementation, the economic program has been driven far off
track by the social unrest and political change that has taken
place. While the broad objectives of the economic strategy remain
unchanged, the program has had to be substantially revised to
reflect the deterioration in the economic situation. In
particular, the budget must now allow for much higher social
spending to mitigate the effects of the crisis on the poor.
Another important element of the program is the strengthening of
the strategy for comprehensive solution to the problems of the
banking system. In present circumstances, successful
implementation of the program will require substantial further
financial assistance from the international community.

3. The attached supplementary MEFP sets out our economic
program in more detail. We have established indicative monetary,
fiscal and external targets for en-July, end-August, end-
September, and end-December 1998, and end-March 1999, which are
contained in Annexes A-D. The qualitative performance criteria
for end-September 1998 will be set during the next monthly
review. Structural performance criteria and benchmarks are
contained in Annex E.

4. In view of the delay in completing the second review, we
request that the next three purchases, currently scheduled under
the stand-by arrangement approved on November 5, 1997, as amended
on May 4, be replaced in accordance with the new proposed
scheduled of indicative targets for the respective reviews
associated with each purchase.

5. The review now scheduled to be completed by July 8, 1998,
would be based, inter alia, on monetary and external targets for
end-June. The review now scheduled to be completed by August 25,
1998, would be based, inter alia, on fiscal targets for end-June,
as well as monetary and external targets for end-July. The review
now scheduled to be completed by September 25, 1998, would be
based, inter alia, on fiscal targets for end-July as well as
monetary and external targets for end-August. These indicative
targets are set forth in the annexes attached hereto.

6. As data is not available for the end-June performance
criteria relating to (a) the contracting or guaranteeing of new
external debt, and (b) the stock of short term debt outstanding,
we request that the applicability of these performance criteria
be waived with respect to the July review. Additionally, it is
not possible to merge Bank Bumi Daya and Bapindo, and transfer
their problem loans to the asset management unit of IBRA by end-
June, because the preparatory work has taken longer than
expected, These actions are now scheduled to be completed by end-
July. Consequently, we request a waiver for the non-observance of
this structural performance criterion on schedule.

7. While we firmly believe that the policies set forth in the
attached MEFP are adequate to achieve the objectives of the
program, we remain committed to taking any additional measures
that may be necessary for this purpose. During the period of the
stand-by arrangement, Indonesia will continue to consult with the
Managing Director of the Fund on the adoption of any measures
that may be appropriate, at the initiative of either the
Indonesian authorities or the Managing Director, in accordance
with the Fund's policies on such consultations. We will also
provide the Fund with such information as it requests on the
progress made in policy implementation and achievement of program
objectives.

Sincerely yours,

For the Government of Indonesia,

Ginandjar Kartasasmita,

State Coordinating Minister for Economy,

Finance and Industry.