IMF, RI design new economic program

IMF, RI design new economic program

JAKARTA (JP): The International Monetary Fund (IMF) and the
Indonesian government are designing a completely new economic
program with a new funding scheme for the next three years.

IMF Asia Pacific director Hubert Neiss told reporters on
Tuesday both the old program and the remaining undisbursed loans
had been canceled.

"A new amount (of loans) is pledged and that new amount, of
course, has to be approved by the IMF executive board," Neiss
told a press conference following a meeting with the leaders of
the House of Representatives.

Neiss explained that under the old program, the IMF initially
committed a total of US$10 billion out of the $43 billion in the
bailout fund for Indonesia it had organized.

He said the Fund then raised its commitment by more than $2
billion, but this additional amount had not yet been disbursed.

Asked to disclose the amount of the new pledge, Neiss said,
"You'll see it in the new letter of intent ... It will be higher
than what was left in the old program."

But Neiss said the amount of the new loan was not important.

"This is because Indonesia is no longer in a balance of
payments crisis. Indonesia's financial situation has stabilized,
and its foreign exchange reserves have been replenished," he
said.

"So there's no longer an emergency," he added.

Indonesia agreed in November, 1997, on an IMF-led bailout
program amounting to $43 billion to help restore confidence in
the ailing rupiah. The Fund has thus far disbursed some $10
billion out of its $12.3 billion commitment.

Neiss came to Jakarta late last week to finalize talks with
the Indonesian government over the country's new letter of intent
(LoI) to the Fund.

The LoI comprises Indonesia's basic economic strategies which
are to be financed by the IMF.

Neiss said on Monday some 90 percent of the content of the LoI
had been agreed.

The new LoI is expected to be unveiled in the middle of
January when the government submits the next April 2000-December
2000 state draft budget to the House of Representatives.

Once the LoI is approved by the IMF executive board, which is
also expected in the middle of January, the Fund will disburse
its loans to the country.

Two of the thorniest issues in the new LoI are the planned
reduction of government subsidies on fuel and electricity and the
size of import tariffs to be imposed on rice and sugar.

Director general of oil and gas at the Ministry of Mines and
Energy Rachmat Sudibyo said on Tuesday the government and the IMF
had agreed to reduce fuel and electricity subsidies, which would
result in a 20 percent increase in fuel prices and 35 percent
increase in electricity tariffs.

Rachmat also said the IMF had agreed the new fuel and
electricity price policy would be implemented in April, the start
of the country's next state budget.

Speaking to reporters after meeting with the IMF and World
Bank officials, he said the IMF had initially demanded the new
policy to be implemented in January.

The IMF and the World Bank have urged the government to
gradually reduce the subsidies to create a healthy state budget.

Meanwhile, Minister of Trade and Industry Jusuf M. Kalla said
the government and the IMF had yet to agree on the magnitude of
the planned import tariffs on rice and sugar.

"We'll continue discussing it with the IMF tomorrow
(Wednesday)," Kalla told reporters.

Minister of Cooperatives Zakarsih M. Noor said the government
was proposing an import tariff of 30 percent for rice in a bid to
protect local farmers from cheaper imported product, but at the
same time still provide a profit margin for traders to import the
commodity.

"The IMF wants a tariff of only 10 to 20 percent, so I think
we could get a tariff of around 25 percent," he said.

The IMF has been traditionally against any trade protection
measures.

The government has said the next state budget would reflect
efforts to reduce the country's dependence on foreign loans.

The World Bank said in a statement on Tuesday it had agreed
with the Indonesian government to cancel $556 million in 43
project loans, which represented 18 percent of its undisbursed
loans to the country.

World Bank country director for Indonesia Mark Baird said, "By
canceling components of slow-moving projects, we are working with
the government to maintain the relevance and effectiveness of our
programs, while reducing the overall financial burden Indonesia
faces."

"In this way, we can reorient our programs to support
Indonesia's priorities as it emerges from the crisis."

The World Bank and the government of Indonesia embarked on a
program of loan portfolio restructuring over a year ago,
canceling nearly $1 billion in commitments to ongoing projects
and redirecting another $1 billion to crisis-targeted programs
such as school scholarships, social and human development and
rural investment. (rei)