IMF ready to give more money to Indonesia

IMF ready to give more money to Indonesia

WASHINGTON (Reuters): The international community, which announced plans on Friday to get Indonesia's economy back on track, could make US$40 billion available in the biggest aid package since Mexico's bailout in 1995.

Michel Camdessus, managing director of the International Monetary Fund, told a news conference the IMF was ready to step in with $10 billion over three years provided Indonesia met the terms of a comprehensive reform package.

"After 30 years of sustained rapid growth and remarkable poverty reduction ... this program ushers in ambitious reforms designed to equip Indonesia's economy for the challenges and opportunities of globalization in the coming decades," he said.

"These measures should restore confidence in the Indonesian economy and contribute to the stabilization of regional financial markets, and I hope beyond," he said.

Other international financial institutions will also contribute, while countries in Asia and elsewhere will provide what U.S. officials described as a "second line of defense" -- extra funding in case things turn sour.

The package was announced after a turbulent week on world markets, including the biggest one-day point drop in the U.S. Dow Jones stock index and sharp share price movements in Hong Kong.

It was the third IMF bailout in Asia in four months.

Indonesia, long hailed as one of the booming tiger economies of Southeast Asia, turned to the fund for help earlier this month after its rupiah currency fell sharply on foreign exchange markets.

The IMF has already loaned $1 billion to the Philippines, and it masterminded a $17.2 billion international loan package for Thailand, whose currency crash in July triggered the financial turmoil across the region.

But the Indonesian package is both far bigger than the ones that went before and structured somewhat differently from them.

A first line of loans will offer Jakarta a total of $23 billion, mostly from the IMF, the World Bank and the Asian Development Bank.

But announcements on Friday and pledges made in the past indicate that contributions from bilateral donors could add some $17 billion to the package, including $3 billion from the United States.

"If there were to be some problem and Indonesia was to continue to meet its conditions, as a backstop ... we and a number of nations have indicated that we'd be prepared to consider making available support," U.S. Deputy Treasury Secretary Lawrence Summers told CNBC Television.

Camdessus named Australia, China, Hong Kong, Japan, Malaysia, Singapore and the United States as among those ready to participate in bilateral efforts.

"What we need is the demonstration of solidarity by these countries, their readiness to step in very adverse and totally unexpected circumstances," he said.

Indonesia's obligations under the deal include promises to restructure banks, reform the tax system and cut tariffs and trade barriers to meet rules of the World Trade Organization, the Geneva-based watchdog for free world trade.

Compliance with the WTO could threaten pet Indonesian government projects, such as a plan to build a national car, an expensive venture the government has so far promised to defend.

Camdessus said he would ask the IMF's executive board to approve the IMF's $10 billion share of the package on Nov. 5.

Other big contributions will come from the World Bank, which is giving $4.5 billion, and the Asian Development Bank, which is making $3.5 billion available.

"We strongly welcome the economic reform program announced by the government of Indonesia ... and plan to support its implementation with a package of loans and technical assistance," World Bank President James Wolfensohn said.