IMF sets conditions for loan disbursement

IMF sets conditions for loan disbursement

WASHINGTON (Dow Jones): The International Monetary Fund continues to insist that Indonesia make substantial steps toward resolving a high-profile banking scandal case before the Fund will consider disbursing additional financial assistance to the country, IMF Asia-Pacific director Hubert Neiss said Tuesday.

Speaking at a press conference on the sidelines of the annual meetings of the IMF and the World Bank, Neiss reiterated the four main demands the Fund is making of Indonesia for dealing with the case surrounding alleged illegal payments by Bank Bali.

Those are: that Indonesia conduct an independent investigation, that it make the results of that investigation public, that it prosecute any illegal acts made in the case and that measures are taken within the government and Bank Indonesia, the central bank, to ensure that such scandals won't recur.

The case relates to an US$80 million payment by PT Bank Bali to a firm linked to the ruling Golkar party, ostensibly for debt- collection services relating to some outstanding government- guaranteed loans.

The issue was first raised when Standard Chartered Plc discovered a hole in Bank Bali's books during a due-diligence review conducted in advance of the British bank's planned purchase of a 20 percent stake in the Indonesian bank.

After that, the Indonesian government, bowing to domestic and international pressure, commissioned an audit of the transaction by PricewaterhouseCoopers. That report has been completed but the government has refused to release it in full, prompting a call from IMF Managing Director Michel Camdessus for Indonesia to publicize its findings.

At the same time, Neiss stressed that the IMF is still in consultation with the Indonesian government, even though the Fund has suspended a scheduled country review, effectively putting on hold the release of the next tranche of a $12.1 billion IMF loan package signed in 1997.

"It is important to emphasize that the IMF has not cut off relations with Indonesia," Neiss said. "All that the IMF has done is suspend program discussions until conditions are appropriate to conduct those discussions.

"We maintain contacts with the government at all levels and we are working with the government to get a speedy resolution of the Bank Bali case."

But Neiss also said that negotiations will inevitably be on hold until after presidential elections are concluded in November. The time constraints posed by a potential change in administration mean "it is not physically possible to negotiate another letter of intent," he said.

The Indonesian delegation to the IMF and World Bank meetings this year is led by Bank Indonesia governor Sjahril Sabirin. The governor was one of seven officials called upon last week by the Indonesian parliament to step down so that an investigation can be conducted into their involvement in the Bank Bali case.

Neiss also defended the IMF's role in helping the international community exert pressure on Indonesia so that Jakarta accepted a peacekeeping mission in the violence-wracked province of East Timor earlier this month. Shortly after IMF officials made frank statements of concern about Indonesia's reluctance to cooperate, the government agreed to let the peacekeepers into East Timor.

Neiss made it clear that the Fund, in its responsibility to its 182 member countries, had a strong intrinsic interest in such cases of international diplomacy.

"This is a humanitarian issue. If people are suffering, none in the world community, including the IMF, can be indifferent," Neiss said. "Secondly, it is important to understand that the IMF can only be effective (to the extent) that it has the broad backing of the international community."

Neiss didn't sound especially concerned about an expected delay in the government-run Indonesian Bank Restructuring Agency's plans to dispose of Rp 17 trillion ($2 billion) in assets this year. Those assets, which came under its control as a part of a scheme to recapitalize the country's distressed banking sector, must have their value preserved, he said.

After a recent sharp fall in the rupiah and an apparent loss of confidence in Indonesian markets among foreign investors, most analysts doubt that IBRA can meet its targets. They expect that IBRA will wait for a recovery in confidence before it moves to sell the assets, so as to maximize proceeds.

Despite such concerns, Neiss expressed moderate optimism about Indonesia's prospects.

He explicitly included the country in a generally positive overview of the Asian region's recovery from the financial crises of 1997 and 1998.