IMF, Indonesia 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.