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)