IMF approves disbursement of $395m loan tranche to Indonesia

JAKARTA (JP): The International Monetary Fund (IMF) approved early on Tuesday Indonesia's new Letter of Intent (LoI), clearing the way for disbursement of a US$395 million loan tranche to the country.

The IMF's approval of the LoI is expected to enable the cash- strapped country to obtain a vital debt rescheduling facility from the Paris Club of creditor nations.

IMF First Deputy Managing Director Anne Krueger said Indonesia deserved strong support from the international community because it had responded decisively to macroeconomic challenges and market uncertainty.

"The conclusion of the third review ... is based on the adoption of early confidence-building measures and the commitment of the new economic team to maintain macroeconomic stability and reinvigorate reforms," Krueger said in a media statement.

The LoI, which outlines a set of economic targets and reform programs, was drafted by the government and an IMF special mission late last month.

The LoI was approved despite uncertainty over the governments plan to sell Bank Central Asia (BCA), with the House of Representatives continuing to deliberate its approval of the move.

Legislators are scheduled to convene on Wednesday to decide on the BCA sale.

"The planned sale by IBRA (the Indonesian Bank Restructuring Agency) of strategic stakes in the publicly listed Bank Central Asia (BCA) and Bank Niaga will serve as an important litmus test of the government's commitment to reprivatizing the banking system," Krueger said.

The government plans to sell a 51 percent stake in BCA to strategic investors as part of an agreement with the IMF. Last year, legislators blocked the BCA sale plan, causing the IMF to suspend its loan program to Indonesia.

Golkar legislator Paskah Suzetta said that the House had not made any deal with the IMF on the BCA sale plan. IMF Asia Pacific director Yusuke Horiguchi met with House leaders Monday, stressing the importance of the BCA sale to the economy.

Meanwhile, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said the IMF funds could be disbursed within weeks, depending on how fast Bank Indonesia prepared documents for the transfer.

The IMF loan should also help boost the confidence of investors and international donors in the country.

Speaking in a hearing with the House, Dorodjatun said he would seek some $1 billion through an international development assistance (IDA) loan from the World Bank to help finance the 2002 state budget.

The relatively cheap IDA loan carries an annual interest rate of 0.3 percent.

The government is scheduled to hold a meeting with the Consultative Group on Indonesia (CGI) in November. CGI groups the country's traditional donors, coordinated by the World Bank.

A special government team commenced talks with the Paris Club late on Monday, Jakarta time. The Paris Club is expected to give its formal approval to the rescheduling of $2.8 billion in sovereign loans maturing between this year and next, which would help ease the burden on the state budget.

The government has also planned to ask for another rescheduling facility for some $6 billion worth of debt maturing between 2002 and 2004.

The IMF $395 million loan installment is part of a $5 billion loan package promised by the IMF early last year.(03)