IMF approves loan installment for Indonesia

IMF approves loan installment for Indonesia

WASHINGTON (Dow Jones): The International Monetary Fund Tuesday approved a US$460 million loan installment for Indonesia.

In a further vote of confidence in Indonesia's economy, the IMF said in a statement that its directors approved the sixth review of the IMF's Extended Fund Facility arrangement with Jakarta and have given their approval to disburse the next installment.

Stanley Fischer, the IMF's first deputy managing director, said in a statement later Tuesday the latest review of the Indonesian economy found "signals of an incipient recovery in real output."

Fischer said the IMF's board also welcomed a recent improvement in market confidence toward Indonesia, the successful conclusion of recent national elections and the continuing implementation of the economic reform program.

He said the success of this program so far is evident in the recent recovery of the Indonesian rupiah and a climb in local equity prices.

"The agreed monetary policy stance should permit a further gradual and market-led decline in interest rates given the sizable output gap and the absence of inflation," Fischer said.

"Exchange rate policy should continue to be implemented flexibly so as to accommodate market pressures. In the near term, fiscal policy should deliver the planned stimulus necessary to promote recovery," he said.

In particular, the government should aim to boost spending on social programs to aid Indonesia's poorest, Fischer said.

"Directors emphasized that the restoration of strong and sustainable growth requires an acceleration of structural reforms, especially in bank and corporate restructuring," he said.

Fischer urged the Indonesian government of President B.J. Habibie to spur the recapitalization and restructuring of state banks, to accelerate the privatization of banks taken over by the Indonesian Bank Restructuring Agency and to improve bank supervision.

Turning to Indonesia's private sector, Fischer said that with a new framework in place to work out corporate debts, there remains the challenge to ensure that creditors and debtors actually seize this opportunity to negotiate new debt settlements.

He also stressed the need for Indonesia to press ahead with new bankruptcy procedures to ensure that companies hemorrhaging losses are forced to close instead of soaking up more debt.

"Directors recognized that the economic recovery is still at an early stage, and emphasized the need for continued careful implementation of agreed macroeconomic and structural policies to ensure that recent achievements are preserved and enhanced as the political environment changes," Fischer concluded.