IMF worried over crisis in Indonesia

IMF worried over crisis in Indonesia

WASHINGTON (Reuters): IMF officials on Tuesday called
Indonesia's economic crisis worrisome and faulted the Jakarta
government for failing to follow through on pledges to
restructure the nation's economy, the Washington Post reported
yesterday.

"We would like to see the senior leadership in Indonesia stand
up and be counted on the reforms," the newspaper quoted a senior
International Monetary Fund official as saying.

"I think the markets are asking themselves the question of
just how much the senior Indonesian leadership is committed to
these programs and particularly to the major reform measures that
affect the family" of President Soeharto, the official told the
paper.

Indonesia, which agreed on an IMF-led bailout of over $40
billion in October, has seen its currency continue to decline
sharply despite the rescue package. The Jakarta government also
announced a budget on Tuesday that failed to meet targets set by
the IMF under the bailout deal.

The rupiah's continued declines are raising the prospect that
Indonesia's bailout package will have to be supplemented or
altered in some way, the officials said.

One possible outcome is the IMF, which disbursed $3 billion in
loans to Indonesia in November, will refuse to approve a second
installment of $3 billion that is scheduled to be advanced in
mid-March after a review of Indonesia's performance.

The Post quoted one IMF official as saying: "It will be a key
moment for all of us -- not just the Indonesians, but all of us
trying to think through how to deal with this situation
successfully."

Indonesia announced a Rp 133.5 trillion rupiah budget for the
year beginning April 1, setting an increase of 32.1 percent in
government expenditures and revenues from the current budget,
disappointing analysts and financial markets.

Markets voted with their feet after the budget. The rupiah
plunged to a fresh low of 8,200 in early trade yesterday and the
Jakarta stock market index opened more than one percent down at
just under 400 points.

Analysts said projections of four percent economic growth,
inflation at nine percent, the rupiah at 4,000 to the dollar and
an increase in tax revenue during the period were difficult to
achieve given the depth of the crisis.

In Hong Kong, Asian fund managers said yesterday Indonesia's
failure to table a credible 1998/99 budget was expected to spur a
second round of negotiations between Jakarta and the IMF.

"(IMF managing director) Michel Camdessus is a strict
disciplinarian," said Marshall Mays, chief strategist at Nikko
Research Centre in Hong Kong. "He won't flinch. He'll come back
and say 'This is it. No more money. Your next tranche sits in the
bank.'"

Some Asian analysts said the budget revealed that the
Indonesian government considered IMF discipline a secondary
concern to the risk of social disturbance prior to March
presidential elections.

"Indonesia is backing away from the table and saying, we
cannot do this," said Mays.

Chris Tinker, head of regional economics at ING Barings, said
that with its budget, Indonesia was following a path already
traveled by IMF recipients South Korea and Thailand -- back to
the agency's doors with a plea for leniency.

He said that balancing the budget in a debt-laden economy
confronting mass bankruptcies and a collapse in consumer demand
would be extremely difficult, and achieving a surplus under these
conditions was highly unlikely.

The IMF will not want to be seen to be backing down from its
original requirements, but probably underestimated the social
risks of the economic plan agreed to in October, Tinker said.

"But unfortunately, trying to force the issue in the current
climate where most of corporate Indonesia is effectively bankrupt
is just something that has huge socio-economic consequences which
the IMF had no anticipation of provoking."

More than two million workers have been laid off and civil
servants have been denied even an inflation-indexed pay increase.

But Mays argued that rather than genuine labor riots,
Indonesia was now at risk from social unrest provoked by powerful
interest groups willing to pay peasants to stir up trouble in a
bid to resist economic reforms.

Related story -- Page 10