IMF approves subsidies and Bulog's existence

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)