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.