IMF, foreign donors urged to quickly disburse loans

JAKARTA (JP): Economists welcomed yesterday Indonesia's new accord with the International Monetary Fund (IMF) and urged the agency and other donors to quickly disburse their pledged loans to the country to prevent costlier crisis-saving measures.

"The loans have to be disbursed quickly or the bailout efforts will be fruitless," said Umar Juoro, a senior economist at the Center for Information and Development Studies (CIDES).

He predicted that the financial markets would react positively when the IMF and other donor institutions, including the Asian Development Bank and the World Bank, realized their loan commitments.

The market's response to the new IMF deal was cool yesterday because it had already been discounted, he added.

The rupiah stayed at Rp 14,800 to the U.S. dollar yesterday, a depreciation of about 80 percent from its value last July.

"There was nothing new. The market has anticipated it," said Goei Siauw Hong, head of research at SG Securities Indonesia, commenting on the market's cool reaction to the new IMF accord.

The government announced yesterday a new memorandum of economic and financial policies signed with the IMF Wednesday afternoon. The deal, the third revision of the reform program signed with the IMF in October last year, calls for a larger subsidy allocation in the state budget and an accelerated effort to restructure the country's ailing banking sector.

Indonesia sought the IMF's financial and technical assistance last year to help lift the country from its worst-ever economic crisis due to the sharp drop in the rupiah against the U.S. dollar.

The Fund has a commitment to provide $10 billion in a balance- of-payment loan as part of the US$43 billion bailout fund to help lift the country out of its crisis.

The Fund, which had disbursed $4 billion, was initially scheduled to extend another $1 billion earlier this month, but delayed it due to the political unrest in May.

The economic assumptions in the new IMF accord have also been revised. The economy is now projected to shrink around 10 percent this year, annual inflation to reach 80 percent, the rupiah to stabilize at about Rp 10,000 to the dollar by the last quarter of 1998, and the budget deficit for the 1998/1999 fiscal year to jump to 8.5 percent of gross domestic product.

"The new macroeconomic assumptions indicate that our economic outlook is gloomy," Umar said.

Former central bank director I Nyoman Moena also urged the IMF and other donor institutions to immediately extend their loan commitments to help stabilize the rupiah.

The stabilization of the rupiah is considered key to solving problems like the huge budget deficit, banking restructuring, and government and private sector overseas debts, he said.

"The immediate disbursement of the aid commitments will be key to stabilizing the rupiah."

He added, however, that the $1 billion tranche to be disbursed by the IMF was no longer enough because the economy had plunged deeper into recession than was predicted when the last deal was made.

"That amount would have been enough if it was disbursed two months ago," he said.

He said the IMF should provide the country with at least $3 billion in the up-coming disbursement, as initially agreed with the Fund in October. This was slashed to $1 billion when ex- president Soeharto backtracked from the agreed economic reform programs.

Nahdlatul Ulama (NU) chairman Abdurrahman Wahid said there should not be any grounds for Indonesians not to support the latest agreement.

"I call on Indonesians to support the agreement and President B.J. Habibie's effort to bring an end to the economic crisis, despite all our political differences," he said following a meeting with the IMF's Asia Pacific director Hubert Neiss.

Neiss paid a visit to Abdurrahman's residence yesterday to seek the NU chairman's views on the IMF-sponsored reform program. The IMF director was accompanied by IMF senior resident representative Kadhim Al-Eyd. (rei/aly/imn)