IMF delays credit disbursement to Indonesia

IMF delays credit disbursement to Indonesia

WASHINGTON (Dow Jones): The International Monetary Fund will
delay credit disbursements to Indonesia until the terms of a
$10.1 billion standby credit arrangement can be renegotiated, a
senior IMF official said.

Stanley Fischer, first deputy IMF managing director, confirmed
that civil unrest and a range of political uncertainties
surrounding the Soeharto government will necessitate a delay in
the previously planned disbursement on June 4 as "a practical
matter."

"If yesterday was a bad day to be clear about what is going to
happen (in Indonesia), today is a worse day," Fischer said.

He added, "It's clear that we won't be able to move ahead
(with further disbursements) until the political situation
clarifies. That's the basic situation."

Fischer, who acknowledged the IMF isn't certain when it will
be in a position to resume credit outlays, stressed that given
the depth of the rupiah's decline in recent days, and the impact
on a host of macroeconomic assumptions embodied in the IMF
program, it is "very likely" that terms of the program will have
to be revamped.

The senior IMF official underlined the importance of political
stability in Indonesia, noting that the IMF needs a "reasonable"
political system with which to work. And while Fischer wouldn't
be drawn into details on sensitive political issues, he
acknowledged that if Indonesian authorities were to choose a hard
line crackdown, further IMF aid would be unlikely.

Fischer pointed to the IMF's 24-member executive board as the
political compass of the institution. And he noted the likelihood
that an Indonesia government crackdown on political dissent would
be met with opposition on the fund board.

As for the IMF program, Fischer said revisions to
macroeconomic assumptions could be limited if political stability
is quickly restored, and investor confidence boosts the rupiah
from current low levels. However, Fischer suggested that the IMF
remains skeptical about prospects for a rapid rebound in investor
confidence.

"I don't think there's any question that the Indonesian
economy will be set back by what has happened," Fischer said.
"How far? We can't tell."

An IMF mission was scheduled to visit Jakarta last week to
begin the review process necessary for a $1 billion credit outlay
on June 4. But the mission was held because of mounting civil
unrest.

Total IMF outlays to Indonesia are $4 billion. Additionally,
bilateral assistance to Indonesia has been slightly less than
that amount, which translates into disbursement of less than a
quarter of a $43 billion aid package pledged to Indonesia.

Once the IMF can send a mission to Indonesia, Fischer said
that structural economic reform goals embodied in the current
economic program still will remain key to any revised program.
The senior official said that "I can't imagine" structural
reforms would be dropped by the IMF.

"Any new, meaningful program for Indonesia would have the same
structural reforms," agreed Hubert Neiss, the IMF's regional
director.

Fischer, in turn, suggested that spill over from Indonesian,
or market contagion, has been limited in Asia, and elsewhere.

The senior IMF official said that South Korea and Thailand,
which are the other major IMF program nations, "have not been
very affected."

"As far as the program in Korea and Thailand go, those
programs are on track," Fischer said. He noted that "cooperation
is very good" and the governments "are very serious." And he
insisted that "I don't see much feedback" from Indonesia in Korea
and Thailand.

Is there danger that IMF mandates in Indonesia will feed into
broader unrest and repercussions in Asia? "I think what happens
in Korea will be driven by the Korea program and what happens in
Thailand will be driven by the Thai program," Fischer replied.

Fischer said that if Indonesia sought to attain the same
economic performance now as it has under its current program
goals it would likely need additional external aid beyond the
multi-billion-dollar package already pledged.

"I'm not sure they'll get more money," Fischer said, noting
questions about Indonesia's commitment to economic reforms, and
the uncertainties surrounding the politics within the nation.