IMF to release $372m loan to RI

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)