IMF presses for more monetary freedoms

IMF presses for more monetary freedoms

JAKARTA (JP): Indonesia should further relax its monetary
policy to allow economic recovery to proceed with more speed,
International Monetary Fund Asia Pacific director Hubert Neiss
said here on Wednesday.

Speaking to journalists after a luncheon with President B.J.
Habibie, Neiss said relaxing the monetary policy would not affect
the rupiah because it was supported by low inflation.

He also agreed with the government's prediction that single
digit inflation was possible in the 1999/2000 fiscal year and
that the rupiah should strengthen to around Rp 7,500 against the
US dollar.

"As inflation is concerned, yes, a single digit by the end of
the fiscal year is a definite possibility and the government and
Bank Indonesia are working hard for it and we are supporting
them," he said.

Bank Indonesia Governor Sjahril Sabirin said on Tuesday it was
possible inflation would end up in the single digits for the
current fiscal year ending in March 2000.

Plagued by hyperinflation last year, Indonesia saw deflation
of 0.18 percent in March and 0.68 percent in April.

With low inflation and a stable rupiah, Neiss said the
government had more room to cut interest rates and increase
public expenditure.

"In the first four month of this year you had inflation of
less than 4 percent, which is quite remarkable and of course
desirable. And you had a strengthening of the rupiah despite
other influences that may have prevented it. It is a good time
for the interest rates to come down further," Neiss said.

The benchmark interest rate on the one-month Bank Indonesia
promissory note fell by 1.74 percentage points to 31.47 percent
per annum this week from 33.21 percent the previous week.

"Day to day interest rates of course may change. There are
always special factors, but on average we will see interest rates
come down steadily," he said.

The IMF has arranged a financial bailout package worth some
US$43 billion for Indonesia, which has been the hardest hit by
the Asian economic crisis which broke out in mid-1997 when
regional currencies plunged.

Neiss is in Jakarta to review Indonesia's economic progress.

He said the progress of Indonesia's economic recovery would be
detailed in the government's next letter of intent to the IMF.

In the letter of intent, Indonesia likely will lower its
inflation outlook and raise its growth forecast to bring them in
line with current developments.

In the previous letter of intent, the economic growth rate for
the current fiscal year was set at zero percent.

Besides a relaxation of the monetary policy, Neiss said the
current review also would focus on the reform of state banks,
particularly the recovery of their bad loans.

"The main issue is how to get as much money back from the
debtors as possible because the more money you get back, the more
assets you can recover, the lower the cost of bank restructuring
for the government."

However, Neiss said there was not yet an agreement with the
government on how to recover the assets.

Neiss said each state bank should begin collecting money from
their largest debtors. He added the IMF did not require the
government to announce the names of the largest debtors.
(prb/rid)