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.

Statement -- Page 10