IMF team to leave without LoI deal

JAKARTA (JP): The government and the International Monetary Funds (IMF) finalized on Friday the draft of the next Letter of Intent (LoI), but failed to ink a deal which may set back the IMF's US$400 million loan tranche disbursement until September.

Coordinating Minister for the Economy Burhanuddin Abdullah said the government had concluded talks with the visiting IMF team on the economic programs covered by the LoI.

"The IMF mission will submit the government's draft LoI for consideration by IMF management," Burhanuddin said at a press meeting.

He said the signing of the LoI and the subsequent loan tranche disbursement would come after IMF Executive Board approval had been given.

"We expect the entire LoI process from the signing, review, to the long-awaited loan tranche disbursement to be finished before the September meeting of the Paris Club," he explained.

He said the Paris club would meet in early September. It groups together bilateral creditors of Indonesia for the purpose of rescheduling the country's sovereign debt.

The Paris Club of creditor nations agreed last year to reschedule some $5.8 billion of the country's sovereign debt due to mature this year. But a debt rescheduling deal will only become effective if Indonesia manages to abide by, or renew, its LoI.

The LoI contains a set of economic reforms targets, the fulfillment of which is a prerequisite to IMF loan disbursement.

Indonesia missed out on several targets under the previous LoI, prompting the IMF to delay its $400 million loan tranche since last December.

Top government officials had earlier expressed optimism that they could sign a LoI agreement this week.

Burhanuddin said he was confident a deal could be reached before the Paris Club meeting.

"Experience tells me so, unless something extraordinary happens," he said.

This "extraordinary" something could be the outcome of President Abdurrahman Wahid's impeachment hearing on August 1, or even earlier.

Fears persist that the power struggle among the politicians could spark violence at the grassroots level.

Also, Burhanuddin's optimism could well prove to be ill- founded as, according to sources, the IMF's Board of Directors will be in recess starting next week until August 22.

He went on to say that the LoI contained only 35 points or paragraphs, as against over 60 in the previous letter.

However, Burhanuddin refused to comment on the details of the LoI draft.

Broadly, the LoI covered four key areas.

The first area covered monetary policies aimed at lowering inflationary pressures, while the second area dealt with measures to reinforce fiscal sustainability.

Included in the second area were efforts to accelerate the privatization of state enterprises, the sale of assets under the Indonesian Bank Restructuring Agency (IBRA), the restructuring of private sector debts under the Jakarta Initiative Task Force (JITF), and measures concerning regional autonomy and fiscal decentralization.

In the third area, the government had reiterated its commitment to achieving the quantitative targets associated with the above objectives. No figures were disclosed on these targets.

JITF chairman Bacelius Ruru said the LoI draft required his office to restructure $18 billion in debts, of which restructuring schemes covering $12 billion had already been in place since June.

The fourth area concerned good corporate governance and legal reform, Burhanuddin went on.

The LoI draft followed an eight-day-long visit by an IMF special mission, led by its Asia Pacific Deputy Director Anoop Singh.

Singh said the LoI draft was the first of three stages leading to the disbursement of IMF loans.

The next step would be the IMF management review, which he said might take a few weeks. The third stage would follow with consideration of the LoI by the IMF's Executive Board.

"Our strategic objective is to complete the Executive Board meeting well before the Sept. 8 meeting of the Paris Club. In fact, we will be trying our best to accelerate our work so that all the three steps can be in place, if possible, by the end of August," Singh said.(bkm)