IMF tells RI to focus on meeting reform targets

The Jakarta Post, Jakarta

Indonesia should not worry about the delay in loans of around US$360 million from the International Monetary Fund (IMF), but should continue to work on unfinished reforms targets to tap the loan tranche, the IMF said on Monday.

"The government should not be too worried about the next loan disbursement. It has worked hard and much progress has been made," the IMF's senior representative in Indonesia, David Nellor, was quoted by Antara as saying.

The Washington-based IMF board of directors postponed a meeting last month to discuss the next loan tranche because Indonesia failed to submit a progress report on its reforms.

The reforms targets are outlined under the government signed Letter of Intent (LoI) to the IMF last December.

One of the overdue targets is the sale of a 51 percent share in Bank Niaga, ending up late partly because of opposition from legislators.

Also late is the divestment of shares of the state owned Bank Mandiri through the local stock market. It remains unclear when the government will proceed with the plan amid plummeting stock prices.

A number of targets that require approval from the House of Representatives are also falling behind schedule and must now wait until legislators resume sitting next month.

Among them is House approval to issue perpetual promissory notes (PPN) to replace Rp 134.5 trillions (about $14.9 billion) of Bank Indonesia liquidity loans that were misused by Indonesian banks during the financial crisis.

The progress report will then be signed by the Coordinating Minister for the Economy, the Finance Minister, and the Governor of Bank Indonesia. It has been often labeled the seventh LoI.

"I can't say when the government will send it (the progress report) but our focus is now to support efforts made by the government," Nellor said.

An IMF mission to Jakarta last August ended its review on Indonesia with an upbeat note on the country's macroeconomic stability which is the LoI's key target.

Loans from the IMF are used as a cushion for Indonesia's balance of payments or foreign exchange reserves. This differs from foreign creditors under the Consultative Group on Indonesia (CGI), whose loans the government uses to finance its state budget.

Overall the IMF provides Indonesia with $5 billion of which $2.6 billion has been withdrawn thus far.

The loans are tied to a three-year economic reforms program under the LoI, which the government extended by another year to last until the end of 2003.

A spokesman for the Office of the Coordinating Minister for Economy said the government was unsure when it could send its progress report, adding it was hoped it would be done soon.

"We are trying to wrap it up. There is no time frame but the government realizes that this is important as it indicates that the government is continuing its reforms efforts," Mahendra Siregar said, as quoted by Antara.

The importance of the IMF led reforms goes beyond securing Indonesia's balance of payment, as foreign creditors and investors peg their decisions on progress in the LoI targets.

To the Paris Club, under which CGI creditors discuss debt rescheduling deals, continued support from the IMF is mandatory before it can approve a debt rescheduling deal for Indonesia.

At the end of this month, the CGI will also meet in Yogyakarta to discuss new loans for financing Indonesia's 2003 budget.

Mahendra said that even without all LoI reforms targets met, Indonesia would still be able to tap the CGI loans.