IMF approves latest RI loan tranche

IMF approves latest RI loan tranche

Dadan Wijaksana, The Jakarta Post, Jakarta

The International Monetary Fund (IMF) has approved another US$486
million in a fresh loan to Indonesia as the government prepares
to end the current program with the Fund later this year.

The decision was made on Wednesday in Washington by the IMF
executive board after it approved the country's latest economic
reform agenda.

The financial market was not affected by the news as investors
had already anticipated it. The rupiah, which has been rising
rapidly against the U.S. dollar in the past couple of months,
ended lower at Rp 8,260 per U.S. dollar from Rp 8,230 the
previous day.

"The Indonesian authorities are to be commended for their
continued strong policy performance under the arrangement with
the Fund," IMF Deputy Managing Director Shigemitsu Sugisaki said
in a statement.

The IMF said that Indonesia was on track to achieve the full-
year state budget deficit target of 1.8 percent of gross domestic
product (GDP). Progress has also been made in the financial
sector, with the bank divestment program largely on track, as
well as the privatization of state-owned enterprises.

"The divestment of Bank Danamon was recently concluded, the
timetable for Bank Lippo has been announced and the initial
public offering (IPO) of the country's largest bank, Bank Mandiri
is expected to be concluded shortly."

The IMF welcomed such progress, saying: "Sustained strong
progress in the government's comprehensive reform agenda will be
key to improving Indonesia's investment climate and maintaining
market confidence."

However, there is still plenty of homework to be done to reach
such a level.

"Priorities are legal and judicial reform, including the
establishment of the Anticorruption Commission, the adoption of
amendments to the bankruptcy law and the reform of the Commercial
Court."

The current five-year IMF program, which started in 1999, was
meant to help regain investor confidence in the country's economy
by adopting a number of tough economic reform measures. The Fund
disburses its loan in several tranches to help support the
country's balance of payment. But in return, the country must
carry out the reform program.

The latest loan brings the total IMF loan to $4 billion out of
a promised $5 billion package.

Amid strong public pressure, the government is now determined
not to extend the IMF program when it expires at the end of this
year.

Hubert Neiss, who led the IMF team in talks with the
government when the country first entered the Fund-sponsored
bailout program, supported the plan to exit the program.

But he warned that it was crucial for the government to
continue the reform program to maintain investor confidence in
the economy.

"Right now, Indonesia is strong enough to leave the program.
It seems to me, the balance of payment will be strong enough that
the Indonesian situation is manageable without recourse to IMF
financing," Neiss, now a senior adviser at Deutsche Bank, told
The Jakarta Post.

"So, in principle, Indonesia can exit the program by the time
it expires. But the other important point is that Indonesia has
to exit in a way that market confidence is preserved and that
depends mostly on the government's policies."