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.