IMF likely to increase bailout for Indonesia by $1 billion

IMF likely to increase bailout for Indonesia by $1 billion

HONG KONG (Agencies): IMF Asia-Pacific Director Hubert Neiss
said on Wednesday he expects the IMF's Indonesia board to agree
to augment an existing bailout program by about $1.0 billion when
it meets on Thursday.

"I would expect the board will agree," Neiss said at a Credit
Suisse First Boston Investment conference.

Jakarta pledged last week to press ahead with bank reforms in
a letter of intent with the International Monetary Fund, which
has led a more than $40 billion international package to rescue
Indonesia from its worst economic crisis in three decades.

Neiss said the IMF disbursement would probably match the $1
billion in extra funding Indonesia received last year.

Indonesia could not yet expect the type of capital inflows
that South Korea and Thailand have recently enjoyed, he said.

"Therefore Indonesia in the short run is dependent on official
inflows," he was quoted as saying by Reuters.

The letter of intent, required before the IMF will release any
more money, followed Indonesia's long-delayed announcement to
restructure its sick banking sector.

Last month's surprise delay in bank reforms clearly infuriated
the IMF and sparked accusations that the Jakarta government was
buckling under domestic political pressure.

Neiss said he expected Indonesia's June 7 general election to
proceed as planned despite worsening violence in parts of the
archipelago.

Politicians and analysts have said the election might have to
be delayed or canceled if the violence, which has claimed
hundreds of lives, was not brought under control by the time
campaigning started in late May.

"The main impact of the violence is human suffering and loss
of human life," Neiss said. "That's the most important
consequence."

But if it leads to broader disorder, the IMF's economic
program could be affected, Neiss said.

In an interview with Dow Jones Newswires on Wednesday, Neiss
said the IMF director said that recent market rumors that
Indonesia was again flirting with capital controls are false,
noting a statement from Bank Indonesia late Monday to that
effect.

"Forget about it. They're just rumors," he said. "The central
bank is developing a system of monitoring capital flows, which we
think is a very good thing," Neiss said, suggesting that is the
source of rumors. "Monitoring means that you get very precise
data on in and outflows, and you can recognize it at a very early
stage."

The IMF official also reiterated his view that the rupiah is
undervalued, from a long-term perspective. He said the currency
probably would have strengthened more than it did after a bank
closure announcement two weeks ago, but "security issues" of
unrest in the country and election concerns have probably damped
the market's enthusiasm.

"Over the long run, yes, the rupiah is still over-
depreciated," he said. "(We) always have some idea of what is a
reasonable range. The rupiah is still below that band," he said,
declining to provide his own assessment of fair-market-value.

Neiss also said that the agency's three Asian program
countries are unlikely to need to draw on the credit lines made
in 1997 by other governments, and called a second line of
defense.

Neiss said that Indonesia is the most likely country to
require that money, pledged by other countries to bolster the
funding promised by the IMF, World Bank and Asian Development
Bank in the 1997 programs.

But even in Indonesia, Neiss said, he doesn't see the need
arising. For South Korea and Thailand, where the other money is
called parallel financing, he said the need is "unlikely." He
said, "the money now is not that important because the countries
have replenished their reserves."

"Indonesia will slowly improve and not fall back into a crisis
similar to October and November 1997," he said.

The second-line money is meant to stabilize the country in the
event of an unexpected new crisis that causes the country to
again lose its foreign exchange reserves. "It's like an insurance
policy," he said.

The director of the IMF's Asia-Pacific department said that
the IMF is only one influence on these countries to continue
their reforms.

Therefore, markets shouldn't be overly concerned if the IMF
money is dwindling since market forces, creditor banks and other
multilaterals will continue to lead the countries in the
direction of reform. In addition, he said, the governments
themselves are committed to reforms.