IMF to focus review on rice, debt issues
JAKARTA (JP): The International Monetary Fund will focus this month's review of the country's reform program on lowering the price of rice and settling domestic debt of local corporations.
IMF Asia Pacific director Hubert Neiss said on Monday the current price of rice was too high and actions had to be taken to correct the problem.
"The rice subsidies will stay as long as necessary because rice is the people's basic need," he told reporters following a meeting with the country's senior economic ministers.
But he stressed the government must limit the subsidies to the poor.
The government has allocated more than Rp 15 trillion (about US$1.4 billion) in the current fiscal year, which will end in March 1999, to finance the subsidy for the staple.
Over the past couple of weeks, rice prices have sharply increased to about Rp 5,000 per kg, compared to the government target price of Rp 2,000 per kg.
The government has accused hoarders and smugglers of causing the sharp increase in the price.
Thousands of students staged a major demonstration on Monday at the House of Representatives (DPR) building, protesting the high price of rice and demanding that President B.J. Habibie step down.
Neiss arrived in the capital on Sunday for the monthly review of the IMF-sponsored economic reform program, a precondition for the disbursement of the agency's bailout money, next scheduled to be delivered on Sept. 25 in a tranche of about $1 billion.
"I'm happy in the progress (of the reform program)," he said.
He revealed the IMF and the Indonesian government were working on a new letter of intent, expected to be completed by Friday, which would outline the government's economic policies.
The other main element of the document would be domestic debt restructuring of local corporations for the resumption of commercial bank loans to restart production.
"Corporations have to normalize relations with commercial banks in order to get new credits and restart production." He added that the government would soon issue new policies to remove tax provisions which were disincentives to the debt restructuring process.
The government has set up the Indonesian Debt Restructuring Agency (IDRA) to help local corporations settle their overseas debts by provision of foreign exchange at fixed exchange rates.
The key factor for the program to work is the agreement of the foreign creditors to provide a significant debt reduction.
But creditors are demanding that local banks also share the burden of the debt reduction.
"It's a slow process, we have to be patient," Neiss said when asked for comment about INDRA, which started operation on Aug. 3 but has yet to receive any participants. (rei)