IMF, govt reach agreement on fourth LoI

IMF, govt reach agreement on fourth LoI

Dadan Wijaksana
The Jakarta Post
Jakarta

The government reached an agreement on Tuesday with the
visiting International Monetary Fund (IMF) team over the economic
reform policies to be implemented next year, a statement said.

IMF senior adviser for Asia Pacific Daniel Citrin said in the
statement that the letter of intent (LoI) would be presented to
IMF management in Washington for approval.

"Assuming nothing goes wrong, we hope to have a board meeting
at the end of December or early January," Citrin told reporters
on Wednesday.

The approval of the fourth LoI, which basically sets out the
economic targets and reform programs that the government must
achieve and implement, will pave the way for the disbursement by
the IMF of the next US$360 million loan tranche to the country.

The government had earlier said it expected the next
disbursement to take place sometime at the end of this year. The
loan is part of a $5 billion aid package promised by the IMF late
in 1999. So far the Fund has disbursed around $1.2 billion.

The IMF special mission has been engaged in intense
discussions with the government over the past two weeks to review
the country's latest economic situation and the progress of the
reform programs, as well as to draft the fourth LoI.

Meanwhile, the LoI agreement failed to cheer the financial
markets.

The rupiah closed at Rp 10,535 against the U.S. dollar,
unchanged from its close the day before.

Apart from saying that the deal was expected, dealers also
argued that there were no guarantees the government would keep
its promises under the reform program.

The IMF said that it would not disclose the contents of the
LoI until its management had completed reviewing the document.

The statement, however, said that the IMF required measures to
be taken in some areas as part of the effort to establish a sound
foundation for the country's economic recovery.

The Fund maintains that the restoration of the private sector
is central to any sustainable recovery.

"In this respect, reform of the banking system, corporate
restructuring, privatizing state-owned enterprises as well as
intensifying reform efforts in the justice system are essential,"
it said.

"The IMF mission believes that strong endeavors in
implementing these reforms will restore confidence in the
government reform program and sustain the country's economic
recovery in the period ahead."

According to a draft of the deal obtained by Reuters last
week, the two sides have targeted economic growth of between 3
percent and 4 percent next year and inflation of between 9
percent and 10 percent by the end of 2002.

Elsewhere, the IMF also said that it would send a request to
Washington from the government of Indonesia to extend the current
loan program into 2003. The program is supposed to expire in
December of next year.

The government has said that the extension of the IMF program
is crucial if Indonesia is to obtain a rescheduling from the
Paris Club of creditor nations in respect of some $6 billion in
sovereign debt due to mature in 2002-2004.