IMF approves $1b credit for Indonesia

Wed, 06 May 1998, 00:00 WIB | Source: DJ

WASHINGTON (Dow Jones): The International Monetary Fund
approved Monday a US$1 billion credit to Indonesia, thereby
opening the door to the release of $7 billion more in lending and
bilateral aid and trade financing, a top fund official said.

With the IMF's renewed seal of approval, the Asian Development
Bank and World Bank are expected to go ahead with loan
consideration by their boards within a few weeks, said Stanley
Fischer, the first deputy managing director, in a press
conference following the IMF board approval of the outlay.

The ADB loan is for $1.5 billion, and will be available in two
tranches, with the first of about $500 million, said Hubert
Neiss, the IMF's top official in Jakarta. The World Bank loan is
for about the same amount and will also be offered in tranches,
he said.

But the IMF will continue to keep the program under intensive
surveillance, Fischer said, with the next $1 billion tranches
depending on positive reviews, to be completed by the board on
June 4 and July 6.

Japan, Australia and Malaysia will also release some of the
'second-tier' backup financing.

Japan will provide $1 billion and Australia $300 million,
while Malaysia's contribution is still unclear, Fischer said.

In a related development, IMF adviser Prabhakar Narvekar met
with President Soeharto in Jakarta yesterday to convey the
decision of the IMF executive board.

Narvekar quoted the President as saying he remained fully
committed to the economic reforms agreed with the IMF, despite
having had to make a difficult decision to raise fuel prices.

"The President said it was a very difficult decision,"
Narvekar told reporters in referring to the government decision
to raise fuel and electricity prices as of yesterday.

He said IMF Director for Asia and the Pacific Hubert Neiss
would return to Jakarta in the middle of this month to conduct
the monthly review of the reform implementation.

Separately, Coordinating Minister for Economy. Finance and
Industry Ginandjar Kartasasmita said the IMF aid would be used to
strengthen foreign reserves and the balance of payments.

"Indonesia would get $7 billion in aid from the IMF, the World
Bank, Asian Development Bank and several donor countries within
the next three months," Ginandjar told reporters after a meeting
with President Soeharto later yesterday.

He expected that other countries such as Singapore and Brunei
would follow soon, disbursing their aid to strengthen Indonesia's
international reserves.

Fischer said several other countries including the U.S. also
agreed to make second-tier financing available when the bailout
package was first put together last year.

But since there weren't clear criteria for releasing those
funds at this stage, countries were left to make the decision for
themselves, Fischer added.

Still, the board, which voted its support unanimously, called
the program - in its third revision now - a "strong one" and also
noted there were certain subsidies used to try to soften the
economic impact of the crisis on the most vulnerable, Fischer
said.

Fischer said there was "a very definite attempt to cushion the
impact," on the poor.

President Soeharto has backed the program, Fischer said in
response to a question.

Still, "the real test will be whether the program is
implemented and how vigorously it will be implemented," he said.

Continued monitoring is one reason the credit was divided into
three tranches, he said.

Strengthening the rupiah is a key part of the program, and the
success of that effort, as well as for other currencies, could be
affected by external factors, Fischer said.

Thailand and South Korea's initial devaluations were
"excessive" relative to their economic fundamentals. Now, those
currencies are "back closer to where they should be," Fischer
said. That's a positive sign, but the "real restructuring has
still to be done."

But the "weakness of the Japanese economy," including its
financial system, is a factor that has to be watched, Fischer
said. "That is something that is a worrisome factor in the
region," he said, adding that he hopes to see more financial
sector restructuring soon in addition to the recent stimulus
package.

Besides taking steps to dismantle clove and plywood
monopolies, Indonesia has also adopted a more restrictive
monetary policy regime to limit easy credit to the nation's
troubled banking sector and ultimately to assure a stronger
rupiah.

There are certainly concerns about regional political
stability surrounding IMF approval of the credit. But senior
officials have stressed that the institution won't hesitate to
again suspend outlays to Indonesia if program compliance becomes
shoddy.

The idea of resuming IMF payments to Indonesia has prompted
criticism in the U.S. Congress, where lawmakers particularly want
the IMF to tie loans to improved human rights and labor laws.

Democratic lawmakers most prominently hold Indonesia up as an
example of a place where some of the most egregious rights
violations are now taking place. (prb)

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