IMF approves subsidies and Bulog's existence
JAKARTA (JP): The International Monetary Fund (IMF) has approved of Indonesia's plans to continue subsidizing imports of essential commodities and to maintain the State Logistics Agency (Bulog).
Bulog chairman Beddu Amang said after a meeting with IMF officials at the Ministry of Industry and Trade yesterday that the IMF did not want to eliminate Bulog as long as the subsidies continued.
"The IMF understands that the subsidies of certain strategic commodities, such as food, feed meal and medicines, are still needed," Beddu said after the meeting.
Beddu said the government would gradually lift the subsidies after the rupiah, which has dropped 70 percent in value against the U.S. dollar, strengthened again.
Bulog imports certain food products at the market rate, but then sells them to the public at an exchange rate of Rp 5,000 to the dollar.
The rupiah is currently trading at a level of 10,000 to the dollar, forcing the government to bear the difference through subsidies.
"The sooner the rupiah strengthens again, the sooner the subsidies will be lifted," he said.
The IMF had targeted Bulog's monopolistic business practices in its economic reform package agreed to by the government in January.
Under the agreement, Bulog was to relinquish its trading monopoly on agricultural produce, excluding rice, from Feb. 1.
But the government later said it could not fully implement the reforms because some of the points, including issues relating to Bulog's monopolies, could induce undue public suffering since the private sector had yet to replace Bulog's role.
Beddu said the IMF saw that the agency had carried out its tasks effectively and efficiently.
Beddu and other Indonesian officials were in discussions with the IMF team to review the US$43 billion bailout package to save the country's faltering economy.
Later yesterday, Beddu met with Minister of Industry and Trade Mohamad "Bob" Hasan, who led the Indonesian delegation at a structural reform discussion with the IMF.
Prior to the meeting with Hasan, IMF senior resident representative Kadhim Al-Eyd said he could not say anything concerning the discussions until all of the meetings were concluded.
"I will not say anything," he said, adding that there would be more meetings with Indonesian officials.
Minister of Finance Fuad Bawazier said after a separate meeting with IMF officials yesterday that Indonesia was studying new options, other than the controversial currency board system, to quickly stabilize the ailing rupiah.
He said there had been no decision on whether to implement the currency board due to a lack of foreign reserves to cover rupiah in circulation.
"We have other alternatives that are currently being discussed. We will announce them later," he said after a meeting with Hubert Neiss, the IMF's Asia-Pacific director.
He declined to provide details on the new measures.
Vice President B.J. Habibie in Tokyo Wednesday stated that the country planned to reintroduce the currency band system by linking the rupiah to a basket of hard currencies, including the U.S. dollar, the Japanese yen and the future euro.
Meanwhile in Washington, U.S. economist Steve Hanke, an adviser to Indonesian President Soeharto, urged the President not to drop his currency board plan.
"Time is an enemy in terms of the whole package and getting credibility back into the economy and back into the rupiah," Hanke told Reuters from his home near Washington on Thursday.
"They should put in a currency board. The faster they do it the better," he said. "But I'm not the only adviser and I'm not the only party involved."
Hanke, a professor of economics at Johns Hopkins University in Baltimore, has been advising Soeharto to adopt a currency board, which would fix the rupiah's value.
But the IMF and other countries have opposed the idea, fearing Indonesia's ailing economy was too weak to deal with the approach.
The IMF's managing director, Michel Camdessus, was quoted on Thursday as saying he believed Indonesia had shelved the currency board proposal. (08/das)