IMF says nod on new LoI hinges on budget revision

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)