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.