IMF expected to disburse $400 million next month

JAKARTA (JP): The International Monetary Fund (IMF) is expected to disburse before the end of December another US$400 million of the $5 billion committed to bail out Indonesia, according to Coordinating Minister for the Economy Rizal Ramli.

Rizal said on Tuesday that a group of senior government officials and a visiting IMF team had completed the first week of the technical review of the country's economics reform program, and the review would continue later this month following House approval of the 2001 state budget draft.

"We will propose a new letter of intent (LoI) in December," he told reporters following a meeting between senior ministers and the IMF team led by its deputy director for Asia Pacific, Anoop Singh.

The IMF agreed early this year to provide the country with a total of $5 billion to help finance a three-year economics reform program. The IMF so far has disbursed about $1 billion.

The next tranche, expected to be around $400 million, will be released only after the IMF executive board approves the country's new LoI, which outlines the various elements of the economic reform program and the time table for implementation. The new LoI will be made after the joint review has been completed.

Rizal said the government expected economic growth this year to be between 4.5 percent and 5.0 percent.

"And there is still a concern on inflation," he said, adding that the government and the central bank had agreed to closely monitor price development and to take necessary measures to ensure that inflation would be below the government target.

The government initially projected inflation to reach 7.0 percent this year, but it recently revised the target to 8.0 percent.

"Inflation is likely to increase slightly due to a weak currency and recent price adjustments in electricity, telephone and fuel products," Rizal said.

But several analysts have warned the government and the central bank of the danger of inflationary pressure because of the weakening currency and greater demand on goods and services.

Bank Indonesia has raised its benchmark interest rate to more than 13.8 percent in a bid to defend the rupiah and curb inflation. But the tight monetary policy could impede economic growth.

Rizal said that the government shared the IMF view that the current "windfall gain" from high oil prices should be used prudently, including to reduce external debt.

"The House will be consulted on this," he said.

There has been concern that the use of the windfall to finance infrastructure projects would trigger inflation.

On the asset disposal program of the Indonesian Bank Restructuring Agency (IBRA), Rizal said that the government and the IMF agreed on the importance of accelerating asset sales to support economic recovery.

"The new IBRA chairman has already stated that this will be his main priority in the next few months," he said.

The government was recently criticized by the IMF over the delay in the sale of government ownership in the publicly listed Bank Central Asia (BCA) and Bank Niaga. The government made the delay due to unfavorable market conditions and a recommendation from the House.

IBRA chairman Edwin Gerungan said that the sale of BCA would be concluded in March 2001.

Rizal said that the government and the IMF were working out basic principles that would ensure greater transparency and financial soundness in corporate restructuring.

Meanwhile, Singh declined to comment on the plans of Bank Indonesia to curb speculation including by lowering the daily maximum $5 million open forward position.

"I still have to discuss it with Bank Indonesia," Singh said.

"But I can tell you that BI has absolutely assured us that they are committed to maintain the current exchange rate system," he said.

"Any fine tuning that they might do would be consistent with the existing framework," he added.

Singh also said that the current level of the exchange rate of the rupiah against the U.S. dollar was already "well below its economic fundamentals."

He said that the rupiah could only be strengthened if the government was consistent in implementing the agreed economics reform program.

The rupiah has weakened over the past couple of months. Compared to the beginning of this year, the rupiah has dropped by about 20 percent to the current level of about Rp 9,100 per U.S. dollar.

Central bank officials have recently said that measures would be taken to curb speculation in the local currency, prompting market players to think that the government and the IMF would initiate some form of currency control.(rei)