IMF approves $341m in new loans

IMF approves $341m in new loans

Berni K. Moestafa, The Jakarta Post, Jakarta

The International Monetary Fund's (IMF) approved new loans worth US$341 million for Indonesia, signalling continued support in the government at a time when public confidence has been put to the test over recent controversial policies.

"The IMF has approved it (the loans) through its board of directors, and it (the loans) will be disbursed in a few days," Finance Minister Boediono told reporters on Tuesday.

He added that with the loan approval, the IMF also agreed to extend its aid program by another year until 2003.

In Washington Dow Jones reported the IMF as saying the extension was expected to "provide time" for "reforms envisaged in the (IMF) program to take hold."

The new loans form part of a $5 billion aid package for Indonesia tied to quarterly reform programs which are set out under the Letter of Intent (LoI).

The latest loan tranche approval by the IMF's executives comes on the back of last month's LoI signing, the fourth since 2000.

In it the government has also asked for a one-year extension of the IMF's program, which should have expired in December 2001.

A working IMF program is mandatory in securing a debt restructuring deal with creditor nations of the Paris Club.

The government hopes to cut state budget spending by defering some $3 billion in sovereign debts due for payment this year.

Since the government took over late last July, it has quickly warmed up to the IMF, which had put on hold its aid program for eight months under former President Abdurrahman Wahid's often erratic rule.

The signing of the third LoI last August broke the ice with other creditor nations, paving the way for new loan committment and debt restructuring talks.

The IMF was pleased with the smooth sale process for a 51 percent stake in Bank Central Asia (BCA), which in the past had been a source of contention between the Fund and the government. BCA, in which the government owns a majority stake, has attracated a number of foreign investors, most notably the British based Standard Chartered Bank Plc.

But while the government was able to mend ties with its international creditors, criticism has mounted on it for losing touch with priorities at grassroots levels.

Its decision to hike fuel, power and telephone rates simultanously this month led to sharp increases of basic food staple prices, stoking inflation which hurts the low income group the most.

Analysts predicted an inflation rate of well above 1 percent this month alone, in part also because of the left over effect from last monthUs festive seasons. The government hopes to contain the inflation rate at 9 percent for the whole of this year.

All this comes as the government plans to offer an up to 10 year grace period for debtors who have been evading debt payments amounting to billions of U.S. dollars. Bank analysts dismissed the plan as unfair.

The governmentUs ability to secure the IMF loan disbursement has helped instill some of the confidence that was lost over the past few weeks.

In the financial market, news of the IMF's loan approval bolstered the rupiah and the stock index.

On Tuesday, the rupiah reversed its decline to end the stronger at 10,300 against the U.S. dollar from 10,405 a day earlier.

A positive impact was also felt in the stock market, where the index rose to 446.84 from 441.56 the day before.

Foreign investors have been seen returning to the local stock market since yearly this year, a further sign of an improved investment climate here, said the IMF last week.

The Fund foresaw recovering foreign investment, providing the government could maintain its reforms path. Last year, foreign direct investment approvals fell sharp by over 40 percent from the year earlier, mainly as the investment climate was held hostage by nearly six months of political instability.