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."