IMF promises fast action on Indonesia loan

IMF promises fast action on Indonesia loan

WASHINGTON (Reuters): The International Monetary Fund said it could resume lending to Indonesia by early July or sooner, and promised subsidies would remain in place to help the poor cope with rising prices.

IMF First Deputy Managing Director Stanley Fischer told reporters in Washington Monday that release of the fund's next loan payment to Jakarta would depend on the outcome of an IMF review of the battered economy.

But he added: "They need help. The economic team is extremely constructive and I have no doubt that between us we'll work something out."

"We're not going to hold things up in any way. So we'll just go as fast as we can, given the technical need to get the details right."

An IMF mission was due in Jakarta on Tuesday for talks with the country's new government, led by President B.J. Habibie.

The IMF pulled its staff out of strife-torn Indonesia last month and put the country's $41 billion international rescue deal on hold amid social unrest leading to the resignation of longtime president Soeharto and his replacement by Habibie.

But IMF officials have been increasingly upbeat since international banks agreed last week to reschedule the country's estimated $80 billion private sector debt burden.

Fischer said the IMF's revised program with Indonesia would include temporary subsidies to help the poor deal with the rise in the price of food and other essentials.

"More will undoubtedly be necessary in the way of providing for temporary subsidies in the next phase of the program, which is being negotiated now, given the worsening of the exchange rate since April, when the last program was negotiated," Fischer said.

These subsidies would remain in place "until incomes catch up or until the exchange rate appreciates," Fischer said.

He ruled out interest rate cuts, citing the risk of hyperinflation.

"If the exchange rate in Indonesia stays where it is now and interest rates were to be cut... you'd simply have an unsustainable situation that would lead to hyperinflation -- and that is totally devastating," Fischer said.

Fischer said the IMF's mission would focus on macroeconomic issues, and that he doubted the fund's next loan payment would be disbursed within two weeks as some had expected.

But he said the IMF board could take a vote on the next loan installment around July 6 or sooner.

The IMF's decision is key to stabilizing the country's economy. By approving payment, the IMF would clear the way for other lending agencies to disburse their loans for Indonesia.

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