Sun, 04 Jun 2000

IMF to release $372m loan to RI

JAKARTA (JP): The International Monetary Fund approved in Washington on Friday the disbursement of a US$372 million loan to support economic reform program in Indonesia.

The decision by the IMF's 24-member executive board came after a review of the country's three year economic program to meet IMF-imposed economic conditions.

"Executive Directors welcomed Indonesia's recent progress in implementing important fiscal and structural reform measures. The key macroeconomic objectives for 2000 set out in the original program remain within reach," IMF's First Deputy Managing Director Stanley Fischer said at the conclusion of the executive board discussions on Indonesia's reform program.

The release will bring total disbursements to Indonesia under the Fund's $5 billion extended loan facility program to $715 million.

The loan disbursement was delayed in April because of concerns about the progress of the economic reform program.

Fischer said the country's economic reform program showed encouraging results, with prices remaining stable and foreign exchange reserves exceeding program targets.

He also said that the real GDP growth had become significantly positive in the last two quarters with the poverty rate also declining from its 1998 peak.

"Nevertheless, the recent deterioration in market sentiment, and the resulting decline in the rupiah and in the stock market, underscores the need for clear and consistent implementation of the program," he warned.

According to Fischer, the keys to regaining market confidence are to make steady and visible progress in program implementation and to maintain clarity about the authorities' intentions and commitments.

"Critical priorities are the restoration of a sound banking system and resolution of the overhang of corporate debt, to be achieved amid conditions of improved governance," he said in a statement issued ahead of the visit of the IMF's new Managing Director to Indonesia Horst Koehler.

Koehler, who is now in South Korea as part of his Asian tour, is scheduled to meet President Abdurrahman Wahid on Sunday. The IMF chief and the President are widely expected to discuss the government's plan to impose a capital control in a bid to arrest the continued fall in the Indonesian currency.

Despite some delays, important progress has been made in financial sector restructuring, notably with regard to the recapitalization of state banks, and the sale of assets by the Indonesian Bank Restructuring Agency (IBRA), he noted.

He said short-term priorities should include completing the restructuring and recapitalization of the state banks; preparing the IBRA banks for privatization; accelerating IBRA's asset recovery; publishing IBRA's 1999 audited accounts; and strengthening Bank Indonesia's supervision.

Early establishment of an independent and accountable governing body for IBRA was essential given the size of the assets under its control and its pivotal role in debt restructuring, Fischer said.

"The government has now put in place all the elements of an enhanced debt-restructuring framework for the corporate sector, centered around a strengthened Jakarta Initiative Task Force and underpinned by specific measures to increase the legal deterrent on noncooperative debtors," he added.

In the statement, Fischer also said that an orderly sequencing of fiscal decentralization was one of the key challenges facing Indonesian authorities in the coming months, and crucial for maintaining fiscal sustainability.

"The authorities are cognizant of the risks involved and are taking steps to contain them," he said. "However, the operation is complicated and its risks remain high; strong safeguards will be necessary to protect the overall economic program," he added.

Indonesia, dogged by political turmoil and persistent domestic doubts about the merits of IMF-sponsored economic reforms, was the second victim of the painful Asian economic crisis of 1997- 99. It won a $40 billion international rescue package in late 1997 after the crash of its currency exposed debts and other huge problems in the banking sector. (hen)