IMF, government target LoI signing this year

IMF, government target LoI signing this year

The Jakarta Post, Jakarta

The International Monetary Fund (IMF) said it was pushing to
finalize this year the government's delayed Letter of Intent
(LoI), and signaled flexibility over banks divestment targets
amid difficult market conditions.

IMF's senior advisor at the Asia Pacific Department Daniel
Citrin denied the government was planning to delay the reform
program even though the economy had taken a turn for the worse
after the Oct. 12 terrorist strike.

"We're working as hard as possible to get it (LoI) signed this
year," he told reporters on Tuesday.

Citrin is leading an IMF team which arrived in Jakarta last
week to help the government assess the economic impact of the
Bali bombing. His team is also reviewing progress made so far in
meeting the LoI reform targets.

A blow to the tourist sector, the terrorist strike in Bali
also worsened the country's investment climate on which several
LoI targets relied on.

The LoI outlines Indonesia's economic reform program and
contains time bound targets which the government must meet for a
quarterly disbursement of the IMF loan tranches.

The last LoI was signed by the government in December and led
to loan disbursements of US$347 million in April and another $358
million in June.

The disbursements depend on an IMF mission reviewing progress
in the LoI every three months, after which the government may
send a progress report to the Fund's board of directors in
Washington to approve the loan tranches.

The government's progress reports -- signed together by the
coordinating minister for the economy, the finance minister and
the governor of Bank Indonesia -- are also called the LoI.

Since the fourth LoI in December, the government has signed
two reports, better known as the fifth and sixth LoI, that paved
the way for the loan disbursements in April and June.

However, a number of unfinished reform targets has led to the
delay in the seventh LoI. The government should have signed its
progress report in September, prompting the IMF to suspend its
third loan tranche, amounting to some $345 million.

"The loan disbursement will take place after the board
meeting, but we're not at that stage, we are working hard to
finalize the LoI," Citrin said.

One unresolved issue is the delayed burden sharing agreement
between the government and Bank Indonesia after local banks
abused some Rp 138.4 trillion (about $15 billion) of the central
bank's liquidity support loans during the 1997 economic crisis.

Progress is also slow in the creation of an anticorruption
commission which should have been set up by June.

While the IMF appears to be standing firm on these issues, it
showed some flexibility over the slow process behind the
divestment of state shares in a number of banks.

"We're still discussing these issues (bank divestment) with
the government, but I don't think we ever insisted that all these
things must be finalized this year," Citrin said.

The fourth LoI requires the government to finalize this year
the sale of nationalized Bank Danamon and state owned Bank
Mandiri.

With preparations still underway and just two months left, few
believe this target is feasible.

Bank Danamon president director Arwin Rasyid said on Tuesday
it would take until early next year to find a buyer for the bank
and clinch a sales agreement.

And following the downturn in market sentiment since the Bali
bombing, government officials have indicated they may not insist
on selling banks or state companies this year if they anticipated
low proceeds.

Still, Citrin earlier urged Indonesia to push ahead with
reforms despite the Bali bombing.