IMF aid delay 'will further worsen confidence' in RI

JAKARTA (JP): The delay in the disbursement of the International Monetary Fund's US$3 billion second tranche of bailout funds to Indonesia will further worsen confidence in the country's economy, analysts have said.

"We're crushed," said Faisal Basri, a noted economist at the University of Indonesia.

He explained that many fund managers who had earlier expressed optimism would have to freeze their investment plans until August or September due to the IMF's decision.

The IMF said on Friday that its board would not discuss Indonesia's economic reform program before April, effectively delaying the $3 billion payment expected by March 15.

Faisal said Indonesia would not automatically receive the second trance by April if the government failed to satisfy the fund's assessment team.

The IMF said in Washington that the review could only be made after changes to "macroeconomic assumptions" had been discussed with Indonesia's new cabinet.

The People's Consultative Assembly is currently completing its 11-day congress, which is also expected to return President Soeharto for a seventh term in office, at which time he will form his new cabinet.

Following a sharp plunge in the rupiah since August, the President agreed in a letter of intent to sweeping IMF-sponsored economic reforms in exchange for a total of US$43 billion in bailout money, of which the first tranche of $3 billion had been received in November.

Analysts, however, said that they were not surprised by the IMF's decision, despite an earlier statement made by Finance Minister Mar'ie Muhammad on the same day that he was optimistic the second disbursement would be made on schedule.

In addition to procedural matters, analysts said the delay was the result of increasingly tense relations between the Indonesian government and the IMF, which criticized that Indonesia had not been serious about the reforms.

According to Faisal, the reform assessment might be difficult to implement due to the General Assembly and uncertainty on what formula the new government would use in handling the country's worst-ever economic crisis.

He added that such difficulties were multiplied when the Fund's team, which came to Jakarta recently, had not been able to hold constructive discussions with Indonesian ministers, who had been busy with the General Assembly.

He also said that the recent sacking of Bank Indonesia's governor and another key official had confused both the IMF and foreign investors.

In early February, President Soeharto indicated the implementation of a currency board for a quick recovery in the rupiah, which had plunged to its lowest rate of Rp 17,000 to the dollar in January, compared to Rp 2,450 during the precrisis period in July.

Despite strong criticism from Indonesia's major donor countries and especially the IMF, which has threatened to withhold its bailout cash if the country proceeds with the plan, the President continued reaffirming his plans early this month by mentioning the IMF-Plus concept, which suggests a combination of reform programs and the currency board system (CBS).

"I think the IMF wants to see whether the new cabinet will be a CBS cabinet or not," Faisal said.

Comments

Government officials were not immediately available for comments on the IMF's decision, but people close to the power circle criticized the delay in the disbursement.

Tanri Abeng, a member of Indonesia's Economic and Finance Resilience Council, formed by Soeharto following the start of the crisis, said that the IMF should specify in which points Indonesia had been inconsistent in relation to the reforms.

"I question the IMF's position, which has not specified ... their points. If they would tell us, we could fix it," he said.

Legislators urged the government to lobby the IMF and make it clear that the bailout package should not be tied to domestic political affairs.

Senior banker I Nyoman Moena said the delay was due to some technical matters and that it would not have much impact on the economy.

He also said that Indonesia has been serious with its reforms, pointing to the dismantling of monopolies, and the banking reform, including the liquidation of 16 banks.

He stressed that the IMF reforms were not sufficient to deal with the current crisis. "We need short-term programs," he said, pointing to a policy that would quickly stabilize the rupiah at a fix rate.

"But I'm not talking about the CBS, which would eliminate the important role of the central bank," he said. (08/byg)