IMF and donors boost RI bailout

IMF and donors boost RI bailout

WASHINGTON (Reuters): The International Monetary Fund on Wednesday approved an immediate $1 billion loan payment to Indonesia and said donors agreed to increase bailout lending by $6 billion on top of previous commitments.

The IMF said new financing for the program would be provided through an "informal arrangement" among bilateral creditors. In addition to the IMF, the statement said Australia, China, the Asian Development Bank and the World Bank would provide the supplemental loans.

"The total additional financing for the program, including the increase in the IMF stand-by credit, amounts to over $6 billion, all of which is to be provided before end-March 1999," the IMF statement said.

"This comes on top of substantial external financing previously committed by multilateral institutions, and by Japan and other bilateral donors."

The IMF assembled a $41 billion bailout for Jakarta last year after the country's financial markets collapsed amid the wider Asian financial crisis.

IMF loan payments were stopped in May because of the political and economic chaos that led to the resignation of long-ruling president Soeharto.

The crisis rendered previous IMF targets for the Indonesian economy meaningless, as the currency collapsed, spurring inflation and leaving many heavily indebted companies vulnerable to bankruptcy.

Because conditions had deteriorated so much, the IMF said the existing bailout package had to be increased by $6 billion.

The IMF said it agreed to boost the size of its 36-month stand-by credit for Indonesia by $1.3 billion, to a new total of $11 billion.

The fund said its board also approved an immediate loan payment of $1 billion, bringing total IMF disbursements under the stand-by credit to $4.9 billion.

In the statement, Alassane Ouattara, one of the IMF's deputy managing directors, said the fund's directors had commended the Indonesian government for "good policy implementation in very difficult circumstances."

He said the executive board "welcomed the economic priorities set by the government to prevent a further economic decline, reduce inflation, and to substantially intensify its efforts to protect the poor from the worst effects of the crisis."

Social programs

Ouattara said IMF directors also agreed that a much higher budget deficit was needed to support subsidies on essential goods and for social programs.

"Continued firm control over monetary policy and rapid implementation of the reforms under way in the banking system and corporate restructuring were also viewed as policy priorities," he said.

In Jakarta, the Indonesian financial market cheered the IMF's fresh loan package.

The rupiah jumped seven percent to 13,200 against the U.S. dollar at the close of the trading, while share prices on the Jakarta Stock Exchange (JSX) gained 1.4 percent, dealers and stockbrokers said.

"That's a very positive news the market has been waiting for. Hopefully, this momentum could be maintained so that we could lead to recovery," Vickers Ballas Tamara's head of research Noraya Soewarno said.

Currency dealers said the news of the extra funding, which brings the total existing IMF rescue package to $46 billion encouraged investors to buy rupiah, assuming that the currency could strengthen further to the level of 10,000 as set by the IMF and the government.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said he was happy with the IMF's decision to provide the $1 billion in immediate aid and the additional loan package.

"Now we have a certainty on our state budget, there is also certainty with our balance of payment, the same thing we hope with the settlement of our corporate debt," he told reporters. "This will give positive impact to the market and boost the confidence on our economy, which we hope will be also reflected in the value of rupiah," he added.

Cooperation

Meanwhile in Tokyo, Finance Minister Hikaru Matsunaga said yesterday that Japan will continue to cooperate with other countries and multilateral agencies on aid for Indonesia.

"We welcome that the IMF executive board has approved its review of Indonesia's economic program on July 15, and its drawing right of $1 billion," Matsunaga said in a statement.

"Japan is the largest provider of bilateral assistance (to Indonesia). We will continue to cooperate appropriately within the framework of international assistance such as this latest agreement," Matsunaga said.

Japan is likely to be the biggest national contributor to planned additional aid for Indonesia through the IMF, according to senior finance ministry official.

"Japan is included among the bilateral contributors... Japan's contribution will be the biggest, as before. Our contribution will likely take the form of new money," the Finance Ministry official said.

He said almost 20 countries were likely to contribute to the additional bailout lending for Indonesia.

He declined to comment on how much individual countries and the World Bank and Asia Development Bank (ADB) would contribute.

The IMF said financing for the increased lending would be provided through an "informal arrangement" among bilateral creditors, meaning through rescheduling of principle payments or provision of an equivalent amount of money.

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