IMF announces $23b aid package for Indonesia

Sat, 01 Nov 1997 | Source: REUTERS

WASHINGTON (Reuters): The International Monetary Fund announced yesterday a $23 billion multilateral financial package involving the World Bank and Asian Development Bank to help Indonesia stabilize its financial system.

At a news conference here, IMF Managing Director Michel Camdessus said bilateral donors -- Australia, China, the Hong Kong administrative district, Japan, Malaysia, Singapore and the United States -- were prepared to provide additional finance if necessary.

Some estimates have put the overall amount at around $30 billion, and possibly more.

"These measures should restore confidence in the Indonesian economy and contribute to the stabilization of regional financial markets, and I hope beyond," Camdessus said.

Detailing the multilateral package, he said the IMF would provide a three-year standby loan facility of $10 billion, The World Bank would provide $4.5 billion and the Asian Development Bank another $3.5 billion.

In addition, there were other expected contributions including use of a part of Indonesia's substantial external assets. "We arrive at a first line of financing in the order of $23 billion. This is without touching the present $20 billion of reserves of Indonesia," Camdessus said.

Indonesia said on Oct. 8 it was seeking IMF assistance to cope with a steep slide in its rupiah currency and earlier yesterday announced a series of fiscal and banking reforms, cuts in tariffs and deregulation.

In a separate statement yesterday the World Bank pledged $4.5 billion in adjustment, operations and investment loans to support Indonesian financial sector restructuring and long-term structural policy reforms.

"We strongly welcome the economic reform program announced by the Government of Indonesia earlier today and plan to support its implementation with a package of loans and technical assistance, World Bank President James D. Wolfensohn said in Washington.

The World Bank said the initiatives are part of a package being assembled by the Indonesian government with the support of the IMF, Asian Development Bank, the World Bank and key bilateral donors.

Wolfensohn said the financial support is to be accompanied by technical assistance to help the government implement complex banking sector reforms.

"Overall, to support Indonesia's economic growth and development, the World Bank plans to disburse a total of $4.5 billion over the next three years for adjustment operations and existing and planned investment loans," Wolfensohn added.

U.S. contribution

Meanwhile, the Associated Press quoted U.S. officials in Washington as confirming yesterday that the Clinton administration will commit $3 billion to an economic rescue package for Indonesia.

The U.S. contribution in loans will come from the Emergency Stabilization Fund, the same source of support that President Bill Clinton tapped in 1995 to rescue the Mexican economy after its currency collapsed.

The administration, which had declined to play a major role in a $17.2 billion bailout package assembled in August for Thailand, was forced to reconsider following Monday's record stock market plunge on Wall Street triggered by the spreading economic troubles in Southeast Asia.

Administration officials said that U.S. loan assistance would only be tapped if the initial credit support provided by IMF proves insufficient to help Indonesia stabilize its economy.

That effort triggered heavy criticism by Republicans in Congress, who charged the Mexican plan put U.S. taxpayers at risk to bailout wealthy investors who were burned when Mexico's currency collapsed in December 1994.

In the case of Mexico, the United States provided $12 billion in loans - all now repaid - from the Emergency Stabilization Fund.

The fund was established in the administration of Franklin Roosevelt to support the U.S. dollar. After Clinton was unable to get quick congressional approval to help Mexico, he turned to the fund, which is administered by Treasury and the Federal Reserve.