IMF approves $10 billion loan for Indonesian bailout
IMF approves $10 billion loan for Indonesian bailout
WASHINGTON (Reuters): The International Monetary Fund on Wednesday approved a $10 billion loan for Indonesia as part of a massive international package to get the country's economy back on track.
The IMF's executive board said the money would be provided to Indonesia over the next three years assuming it meets the terms of a comprehensive reform package.
Despite the international bailout, the fund said the economic crisis would stunt the country's growth over the next two years, and increase inflation.
The loan "marks an important step in the process of stabilizing the financial markets in Southeast Asia," IMF Managing Director Michel Camdessus said in a statement.
He applauded new government measures to address the country's economic problems.
"The bold policy actions now being undertaken by the authorities should not only help restore confidence in the Indonesian economy, but also do much to help calm the turmoil that has been sweeping the region since July," Camdessus said.
Indonesia's package was announced on Friday after a turbulent week on world markets, including the biggest one-day point drop in the U.S. Dow Jones stock index and sharp share price movements in Hong Kong.
It was the third IMF bailout in Asia in four months. Indonesia, long hailed as one of the booming tiger economies of Southeast Asia, turned to the fund for help last month after its rupiah currency fell sharply on foreign exchange markets.
A first line of loans will offer Jakarta a total of $23 billion, mostly from the IMF, the World Bank and the Asian Development Bank. But announcements on Friday and pledges made in the past indicate that contributions from bilateral donors could add some $17 billion to the package, including $3 billion from the United States.
Once all the money is counted up, international aid for Indonesia could total $40 billion, making it the biggest aid package since Mexico's bailout in 1995.
The IMF said the government's reform program aimed to restore confidence and stabilize the rupiah, and to limit an "unavoidable" slowdown in economic growth.
Real gross domestic product growth was expected to slow from 8 percent in 1996/97 to 5 percent in 1997/98 and 3 percent in 1998/99. The IMF said consumer prices would rise from 6.6 percent in 1996/97 to 10 percent in 1997/98 and 9 percent in 1998/99.
The fund said measures were in place to keep the budget in surplus despite the downturn, and that monetary policy would remain tight. Domestic monopolies will be dismantled, tariff barriers reduced and unviable banks closed down.
As part of the financial sector restructuring, the government will compensate small depositors only, and not private shareholders and creditors, the fund said. The government will not guarantee any liabilities of private non-financial companies, domestic or foreign.
The IMF said government revenues should benefit from an increase in excise taxes, removal of some tax exemptions and increases in non-tax revenues.
Camdessus said the government's reform package included "many difficult decisions," and was proof of the country's commitment to tight financial policies.
"I believe that they were decisions necessary for Indonesia to return to the path of sustainable high quality growth, to maintain its economic gains into the next millennium, and to play its key role in the region," he said.
Of the $10 billion approved by the IMF on Wednesday, the fund said $3 billion would be available immediately.
Another $3 billion would be made available after March 15, provided that the government meet the program's economic targets and the first review of the program is completed. The rest of the money will be disbursed on a quarterly basis assuming the targets continue to be met, the IMF said.
In a related development, Camdessus said in Paris yesterday he was confident that a very ample international rescue package would return Indonesia to the path of rapid growth after a period of convalescence.
Camdessus told a news conference the $23 billion package had been calculated to deal with the "most pessimistic scenario of (Indonesia's) financing needs for this year and next year.
"In the meantime, Indonesia has had the courage to take the bull by the horns and to take very decisive measures. I have full confidence that the government, which has resolutely taken this direction will continue ... and will get the Indonesian economy on the rails for durable growth," he said.
Referring to the economic measures Indonesia has taken, he said they would let Indonesia "pursue, after a necessary slowdown phase over the next 18 months... its remarkable growth of the last three decades."