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.