IMF aid delay 'will further worsen confidence' in RI

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)