Fri, 27 Jun 2003

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."