IMF approves release of latest tranche of aid package

IMF approves release of latest tranche of aid package

WASHINGTON (Dow Jones): The International Monetary Fund (IMF) on Tuesday approved the extension of a US$957 million credit to Indonesia under the $43 billion economic rescue package it assembled in November 1997.

This installment comes hot on the heels of a Nov. 6 disbursement of $960 million to Indonesia by the IMF, a payment that had been delayed by around one week from the scheduled release date by "technical" factors.

It marks the last monthly release of the fund's overall $11.3 billion standby loan facility for Indonesia, which anchors the package of funds to be provided by multilateral and bilateral lenders to assist Indonesia in recovering from currency weakness that wrecked its economy in 1997.

Next year, the IMF will conduct reviews every two months for the first six months of the year, after which it's set to move to its usual quarterly examinations.

Alassane Ouattara, deputy managing director at the IMF, said in a statement the decision to provide another tranche of funds under the IMF's Extended Fund Facility follows a third IMF review of the state of Indonesian economy and government policies.

"The Indonesian economy has remained on the stabilization path under the most difficult circumstances," Ouattara said.

"Continued policy implementation, despite an environment of political uncertainty, has helped improve market sentiment and the rupiah has strengthened considerably."

Meanwhile, Indonesian Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said in Hanoi on Wednesday that the release of IMF loans should help to lift the rupiah.

"I think it should strengthen the rupiah. At least it will not weaken it," Ginandjar told Dow Jones Newswires on the sidelines of the Association of Southeast Asian Nations summit here.

The U.S. dollar was trading at 7,840 rupiah Wednesday morning in Asia, up from 7,605 late Tuesday.

The IMF official noted signs of growing business confidence, while inflationary pressures appear to be easing, and "marked progress has been made is stabilizing the food situation."

There have been incidents of Indonesians rioting as product prices soared across the country, adding to the public pressure already building around the administration of President B.J. Habibie.

Ouattara said that while there appears to be "scope for progressively lowering interest rates further," the government needs to remain vigilant "and proceed cautiously."

Ouattara said the greatest economic challenges now confronting the Habibie government include the reform of Indonesia's fractured banking system and debt-laden corporate sector.

He stressed that Indonesia's Bank Restructuring Agency must be permitted to operate independently while the central government should focus its efforts on accelerating the recapitalization of stricken banks.

"The government must expedite regulatory approvals for restructuring and take further steps to strengthen the capacity of the judiciary to implement the bankruptcy law," Ouattara said of corporate reform in Indonesia.

Since the economic crisis in Indonesia surfaced last year, the IMF has promised around $11.70 billion in loans to help the wounded Asian tiger, as long as the government sticks to a rigid and demanding program of economic reforms.

This latest credit brings to just over $9 billion the amount paid out by the IMF to Indonesia under the November 1997 rescue agreement.

Rupiah -- Page 9