IMF to disburse $400m loan to Indonesia later this month

JAKARTA (JP): The International Monetary Fund is expected to disburse another US$400 million of its $5 billion bailout fund to Indonesia by the third week of this month, IMF representative in Jakarta John Dodsworth said on Wednesday.

Dodsworth said the Indonesian government would sign its new letter of intent (LoI) to the IMF on Thursday and the Fund's board would convene in Washington around the middle of this month to decide on the next (third) tranche of loan disbursement.

The approval of the LoI, which essentially stipulates economic reform measures to be implemented by the government within a certain period of time, will pave the way for the loan disbursement.

"Hopefully in the third week of this month we will make the disbursement," Dodsworth told a seminar.

He said that the fund would not make any delay in the loan disbursement although some programs supposedly to be completed in August and September had been pushed back to October.

The IMF is providing the administration of President Abdurrahman Wahid with some US$5 billion in bailout cash to help the country finance its three-year economic program.

The Fund has so far disbursed more than $700 million since it made the pledge in January.

Dodsworth said that the new LoI, which will be disclosed to the public on Thursday, would essentially be the same as the one signed by the government on July 31, except for the stipulation of a 10-point economic program recommended by the new economic team.

The previous LoI was prepared by then chief economic minister Kwik Kian Gie in cooperation with a visiting IMF review team.

Rizal Ramli suggested immediately after his installation as the new Coordinating Minister for Economic Affairs late last month that the LoI be slightly amended to accommodate the latest economic developments.

He reasoned that the revision was needed because of significant differences in the current conditions compared to those prevailing when the last review of the economy was made in early July.

The IMF sent its deputy director for the Asia Pacific region Anoop Singh to Jakarta last week to negotiate the slight amendments to the LoI with Rizal.

The IMF was supposed to disburse the $400 million loan late last month, but the disbursement was delayed after the new economic team called for a revision of the LoI.

Dodsworth said that although there were no major changes in the new LoI, the World Bank would now been given the opportunity to take the lead in the discussions on agriculture issues.

Rizal, an economic analyst before his appointment to the Cabinet, had been known as a strong critic of the IMF-sponsored program. He blasted the IMF for what he saw as its 'excessive' meddling in microeconomic issues such as those concerning the agricultural sector.

He argued that the Fund's core competence was in monetary issues.

Dodsworth said that the revised LoI continued to emphasize bank and corporate restructuring, and the sale of the assets held by the Indonesian Bank Restructuring Agency so as to revive confidence and accelerate economic recovery.

Dodsworth also expressed his belief that the Indonesian economy would grow by more than the 3-4 percent targeted for this year.

The economy contracted by nearly 14 percent in 1998 and growth remained flat last year.

Dodsworth shared the view of Bank Indonesia that the government should keep a close eye on inflation.

The government has targeted an inflation rate of between 5-7 percent this year, but many believe that inflation could exceed this target, particularly due to the recent weakening of the rupiah against the U.S. dollar and the planned increase in domestic fuel prices.

But Rizal played down inflation fears on Wednesday.

Speaking to reporters after a meeting between senior economic ministers and Bank Indonesia, Rizal said that the current inflation level was not worrying because "food-inflation" was still low.

"I'm not worried (about the inflation trend)," he said.

Several other officials had earlier also expressed confidence that inflation would remain in single digits this year.

Rizal also stated that he was happy with his meeting with the other economic ministers because the discussions were quite productive.

"There was an agreement to take concrete action to accelerate the corporate restructuring program," he said but declined to elaborate.

He further said that the meeting discussed current macro economic conditions and the state of the banking sector.

Rizal added that the meeting had also agreed to push the banking sector to provide more working capital to exporters in a bid to bolster exports as the second locomotive, after private consumption, for economic growth

He said that the economic team would meet with Bank Indonesia every two weeks to improve coordination so as to create stable macro economic conditions.(rei)