IMF, government complete preliminary discussions

IMF, government complete preliminary discussions

Dadan Wijaksana, The Jakarta Post, Jakarta

The International Monetary Fund (IMF) and the government
completed on Tuesday their initial round of discussions on the
sixth review of the country's economic reform program.

The discussions are designed to pave the way for the
disbursement of the next IMF loan tranche to Indonesia.

The IMF, whose mission to Jakarta is being led by its senior
advisor for Asia Pacific Daniel Citrin, said in a press release
that it would continue discussions with the government with a
view to reaching a final agreement over the economic reforms the
country must institute.

The final result of the review, to be contained in a document
referred to as a Letter of Intent (LoI), would be submitted to
the IMF board of directors for approval, which would result in
the disbursement of the next loan tranche expected to amount to
US$350 million.

The most recent disbursement was made last month when the IMF
approved a $347 million loan to help the country carry out badly
needed economic reforms.

The LoI contains a set of targets by which the IMF measures
Indonesia's progress with economic reform. Failure to meet the
targets could lead to a halt in the IMF lending program.

The IMF is sponsoring the reform program under a three-year $5
billion loan package.

The disbursement of the IMF loan will help improve confidence
in the country's economy.

In its statement, the IMF also noted the country's improving
macroeconomic situation, as evidenced by the strengthening of the
local currency, manageable inflation, and a downward trend in the
central bank's benchmark interest rate.

The rupiah closed the day at Rp 9,030 against the dollar, the
highest closing since September of last year.

The IMF also said that the government was on track to achieve
its budget deficit target of 2.5 percent of gross domestic
product (GDP), provided that expenditure continued to be kept in
check.

However, the IMF also urged the country to stick to the reform
program so as to ensure continued good market sentiment.

"It is now imperative to sustain recent gains by continued
progress in the structural reforms ...," it stressed.

The IMF said the sale of an 8.1 percent stake in state-owned
international call operator PT Indosat for $110 million last week
was a crucial step in the government's privatization program, and
it looked forward to steady progress in the program over the
coming months.

Also decisive was the progress achieved in the divestment of
the government stake's in local banks, and the efforts to bring
Bank Internasional Indonesia (BII) back to better financial
health.

Bank Niaga is currently up for sale, with the Indonesian Bank
Restructuring Agency (IBRA), the holder of 97.15 percent of
Niaga's shares, setting May 27 as the deadline for receipt of
final bids. Four bidders have been shortlisted.

As for BII's rescue plan, the government is now seeking the
approval of the House for the bank to launch a rights issue to
raise some Rp 4.3 trillion to improve its capital adequacy ratio
from minus 47 to 17 percent.

The government should also push ahead with its plans to force
former bank owners to hand over assets to the state, in return
for the huge amount of bailout funds they received as liquidity
loans during the crisis, the IMF said.