IMF 'flexible' on subsidy issues

IMF 'flexible' on subsidy issues

JAKARTA (JP): The International Monetary Fund (IMF) is
prepared to be flexible in ongoing negotiations with the
Indonesian government on subsidy issues, including in the fuel
sector, an IMF official said yesterday.

IMF Asia-Pacific director Hubert Neiss said the world body
could tolerate some allotment of subsidies when it was based on
strong extenuating considerations and would not endanger the
country's budgetary health.

"In general, the IMF is flexible on subsidies. However, we
also have to take into consideration that the budget deficit can
not be allowed to explode," Neiss said after meeting with Vice
President B.J. Habibie at Merdeka Selatan Palace.

Accompanied by IMF officials Prabhakar Narvekar and Kadhim Al-
Eyd, Neiss reported to Habibie on his team's progress in its
negotiations with Indonesian officials on the country's economic
reforms.

President Soeharto has repeatedly said the government would
likely increase fuel prices starting in April and reduce the
government subsidy, estimated at Rp 10.07 trillion for the
1998/1999 fiscal year.

But the government appears cautious in abolishing politically
sensitive subsidies, especially on fuel and basic food
commodities including rice.

Under its agreement with the IMF, the government would raise
fuel prices to reduce its subsidies, except for prices of
kerosene and diesel fuel, which will be kept to a minimum to
protect interests of the poor and public transportation services.

"If there are difficulties, both sides will make an effort to
overcome them," Neiss said.

Kerosene is sold for Rp 280 per liter domestically, although
its import price is Rp 1,300. Diesel oil sells for Rp 380,
compared to its import price of Rp 1,030.

The country is expected to import at least 1.5 million
kiloliters of kerosene, and imports of diesel oil will reach 7.1
million kiloliters for this fiscal year,

"So we have to wait carefully, how much subsidies and to what
extent subsidies can and should be maintained, and to what extent
we have to contain the budget deficit. This is not an easy
issue," Neiss said.

He hoped his team would be able to conclude the negotiations
with the government and said IMF's board of directors would need
about two weeks before making a final decision on Indonesia's
status.

"I hope we can continue to make fast progress, conclude early
and that a good program will support it," he said.

When asked about the short-term target on Indonesia, the IMF
senior economist replied: "The immediate objective of the program
is to restrain inflation and to strengthen the rupiah, not only
to stabilize the rupiah where it is, but to get to a more
appreciated level". (prb)