IMF to begin review of Indonesian reform program

JAKARTA (JP): International Monetary Fund (IMF) Asia Pacific director Hubert Neiss is scheduled to arrive here today to assess developments in the country and evaluate progress on the economic reform program.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said yesterday that Neiss would meet President B.J. Habibie, economic ministers and non-governmental figures during his stay here.

"He is coming here to assess developments in Indonesia and to decide whether or not the reform program has been disrupted by recent events," Ginandjar told journalists after the first meeting of the new cabinet which was sworn in on Saturday.

The new government under Habibie, who took over the presidency from Soeharto last Thursday, has pledged to push ahead with the economic reform program agreed with the IMF in return for a bailout package of US$43 billion. The funds committed by the IMF include a $10 billion loan to help the country's balance-of- payments.

However, the next tranche of the package, due to be disbursed on June 5, could be delayed pending the review.

Meanwhile, IMF Managing Director Michel Camdessus said in Kananaskis in Alberta, Canada, on Saturday that the Indonesia program required readjustment because renewed weakness in the rupiah meant that macroeconomic expectations and targets would have to be revised.

However, Ginandjar said the government did not have plans to revise targets for economic growth, inflation and the rupiah exchange rate against the U.S. dollar.

The last assessment made by the IMF and the government forecast an inflation rate of 47 percent, a rupiah-U.S. dollar exchange rate of Rp 6,000, and gross domestic product (GDP) of minus four percent.

When asked about the possibility of bringing the rupiah into the region of Rp 6,000 to the U.S. dollar, Ginandjar said: "We are still using that figure as a target. However, whether and when we can achieve that depends on various factors, not only economic but also political. So, we must consider all."

The rupiah is currently trading at around Rp 10,000 to the dollar.

Ginandjar said last Saturday that economic recovery would very much depend on the restoration of political stability. He then suggested that a new general election should take place as soon as possible to restore political stability.

However, yesterday Ginandjar stopped short at calling the government a transitional government, but said the new administration would "escort the country into a new era."

"I don't want to use the term 'transition' (for the current government) because the market and economic players would then consider the situation to be unfinished, and investors would continue to be nervous about returning here.

"I would say that this cabinet is escorting (this country) into a new era. The starting point will be a general election and the formation of a new cabinet.

"But this cabinet must also try hard to create strong foundations from which the next cabinet can continue development efforts."

Timing

Prabhakar Narvekar, special adviser to the IMF said in St Gall, Switzerland yesterday that the timing of further disbursements of funds to Indonesia from an IMF-led package depend on the country's political situation.

Narvekar, asked by reporters if he thought payments would resume soon, said: "We certainly hope so. It (the package) has been delayed.

"People will be monitoring the situation in Indonesia...also to see how the political situation evolves.

"The political situation is not something where we can interfere," he was quoted as saying by Reuters.

"The success of the economic policy will depend on political stability, so we have to make sure the political situation stabilizes before we start being very active."

Narvekar was in St Gall for a management forum.

The country's new government under B.J. Habibie, who took over the presidency last Thursday after Soeharto resigned, announced a cabinet which retained many former officials, while ousting Soeharto's daughter Siti Hardijanti Rukmana and a family friend, Mohamad "Bob" Hasan.

Habibie "is moving in the right direction, but it is a long way to go," Narvekar said.

The IMF is leading a $41.2 billion package to help Indonesia's economy recover. The IMF has paid some of the money, and Indonesia also has drawn down IMF contingency reserves. But the timing of further payments is unclear.

Narvekar, an Indian national, said he has been out of Indonesia for about two weeks. But he said some people from the IMF had just traveled to and returned from Indonesia.

Pressed to be more specific about his expectations for the timing of the next payout, he said: "It's hard to say. It depends on the political situation and the expectation they will do the things necessary to be done." (rid/prb)