IMF tells govt to keep on track with next LoI

JAKARTA (JP): The International Monetary Fund (IMF) reminded the government on Thursday to abide by the economic reform targets to be set in the next letter of intent (LoI) and urged it to show strong discipline in meeting the targets.

"The important thing is for the government to implement the program on track, (be) systematic, consistent and predictable. That's what the market is waiting for," IMF Asia Pacific deputy director Anoop Singh told reporters after he made a courtesy call on Vice President Megawati Soekarnoputri.

Singh's statement came as a reminder of the government's poor record in meeting reform targets under the current LoI.

The slow pace and inconsistency that have marred the implementation of the LoI prompted the IMF to suspend its loan program in December.

Meeting the LoI targets, which are aimed at leading the country out of its almost four-year-long economic crisis, is mandatory for receiving IMF funds.

But Indonesian government economists blamed the political instability for the slowdown in the reform program.

"We understand (Indonesia's situation) ... in the long term, you will see the market understands that as well," Singh said.

To date, the market demands Indonesia show consistency in implementing the LoI, he added.

The suspension of the IMF loan has also hurt the rupiah, as other international creditors and investors link their commitments to the IMF's ties with Indonesia.

With a new LoI in sight, the government now hopes the IMF may soon disburse its frozen US$400 million loan tranche.

According to Singh, negotiation between the IMF and the government is edging toward an end.

"We're finalizing our understanding on all fields, and we need just a bit more time," he said.

Singh said that discussion with the government was based on the progress made under the current LoI, from where they would draw up a new economic reform program.

"We're looking at the weaknesses of the old LoI to prepare the new LoI," he explained.

The next LoI, he said, will cover targets in the monetary sector, the banking sector, the state budget and the programs under the Indonesian Bank Restructuring Agency (IBRA).

"The government is now reviewing its targets and may announce them tomorrow (Friday)," he explained.

Singh, however, declined to estimate when he expected the IMF to disburse the tranche.

Economics ministers have aired their confidence that Indonesia could expect fresh funds in August.

But uncertainty over the country's leadership have subdued hopes of disbursement in the first two weeks of next month.

The People's Consultative Assembly, the country's top legislature, is scheduled to convene a special session on Aug. 1, which could lead to the removal of Abdurrahman Wahid as president.

During his meeting with Megawati, Singh also said that he reiterated the IMF's continued commitment to Indonesia.

"We (IMF) need to be patient, because it does take time for Indonesia, as other countries also do, to recover from the crisis," he said.

Elsewhere, Bank Indonesia Governor Sjahril Sabirin said the central bank would raise its intervention rate to absorb excess money supply in the market.

"What remains to be done is to raise the intervention rate," he announced after a meeting with the IMF team.

He said the move would help reduce the supply of base money to between Rp 105 trillion (about $9.29 billion) to Rp 106 trillion from the current Rp 112 trillion.

The overnight intervention rate is currently at 14.125 percent.

Bank Indonesia has relied mostly on its interest rate policy to help the ailing rupiah and has steadily raised its benchmark rate to as high as the current 16.91 percent.

But the central bank has little room left to continue this policy, as a further rise would hurt the banking sector and inflict a bigger burden on the state budget for servicing the bank recapitalization bonds.

Sjahril added that the bank would lower interest rates once the political uncertainty, which has fueled rupiah speculation, eased. (bkm/dja)