IMF says nod on new LoI hinges on budget revision

JAKARTA (JP): The International Monetary Fund (IMF) will only accept the government's new Letter of Intent (LoI) on reform measures if the House of Representatives approves the revision of the current 2001 state budget, legislator Kwik Kian Gie said.

Kwik, a former coordinating minister for the economy , said that visiting IMF Asia Pacific deputy director Anoop Singh indicated the requirement during a meeting with House leaders on Wednesday.

"It was clearly asserted (during the meeting) that everything hinges upon the (completion of) the state budget revision," he told a media briefing following the meeting.

The statement raises speculation that the disbursement of the crucial IMF loan tranche to the country could not be made as quickly as the government expected. A further delay in the disbursement of the IMF money could trigger renewed pressure on the embattled rupiah.

Dipo Alam, a senior government official who leads the government team in the current review of the country's economic reform program with the IMF special mission, said earlier on Tuesday that the new LoI would be signed at the end of this month, and hoped that the IMF would disburse its third US$400 million loan tranche to the country sometime in the middle of May.

But Kwik said it would be unlikely that the revision of the state budget could be approved by the legislature between now and the end of April.

"It is unlikely that the state budget (revision) will be jointly agreed by the House and the government by April 30 because the House has not yet received the details of the state budget revision from the government," he said.

After all, he added, the House is still in recess until April 29.

Under the country's system, the state budget and its revision, if any, must be approved by the legislature to become law. Normally, a revision would take place in the middle of the budget year, in the current case, June, and the House may take between one and two months to complete the debating process of the proposed revision.

Head of the House Budget Committee Abdullah Zainie, however, said that the legislature was willing to take a "short cut." He did not provide any details.

The IMF delayed the disbursement of a $400 million loan tranche late last year, part of the total $5 billion loan package promised by the fund early last year to the current administration, following signs that the government was wavering over the implementation of the fund-sponsored economic reform program.

But after both parties managed to settle their differences the IMF sent its special review mission, led by Singh, to Jakarta last week.

Government officials have said that the focus of current talks with the IMF is on the revision of the state budget, as many of its assumptions may not be able to be realized due to the weakening of the rupiah, the rising domestic interest rate, and a delay in the significant reduction of fuel subsidies.

The IMF has expressed concern that the state budget deficit could exceed 5 percent of gross domestic product (GDP), compared to an initial projection of 3.7 percent of GDP.

The rupiah tumbled to a 30-month low of Rp 11,500 per U.S. dollar last month as the financial market was deeply concerned over the delay in the disbursement of the IMF money and the recent intensifying conflict between Abdurrahman and the legislature.

The rupiah is currently hovering around Rp 10,800 per dollar against the budget assumption of Rp 7,800 per dollar.

The drop in the rupiah prompted Bank Indonesia to raise the interest rate of its SBI promissory notes to 15.93 percent on Wednesday, compared to the budget assumption of 11.5 percent.

The weakening rupiah and rising interest rate are putting pressure on the government budget.

Kwik said that no economic reform program could be agreed with the IMF until the revision of the state budget had been finalized.

He pointed out, as an example, that the revision would decide how much revenue the government would expect from the sale of assets under the Indonesian Bank Restructuring Agency (IBRA) to help cover the budget deficit, and how big a spending cut would be made.

Meanwhile, a source said that the government was now considering revising the rupiah exchange rate assumption to Rp 9,000 per dollar and the SBI rate to 14 percent. (rei)