Indonesia-IMF talks seen to be encouraging

JAKARTA (JP): Talks between the government and an International Monetary Fund (IMF) team here to review the country's economic reform program have made considerable progress, according to Indonesian and IMF officials.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said Saturday that both the IMF and the Indonesian teams were satisfied with the preliminary talks, but that another week was needed before the talks could be concluded.

"The two sides are optimistic that, based on the progress made in the initial talks, this review will result in measures that will not only revive the Indonesian economy but will also create stronger growth in the future," he said.

Ginandjar, however, said the two sides needed to further discuss "several areas" in the coming few days.

"We have made considerable progress over the last few days," said IMF Asia-Pacific director Hubert Neiss following the weekend's discussions.

"We'll stay here until our job is finished. These types of discussions should take two weeks," said Neiss, who started talks with Indonesia's new economic ministerial team last Wednesday.

Neiss was initially set to complete his mission on March 25, according to an official familiar with his schedule.

Ginandjar said talks on the monetary sector looked at ways to push the rupiah to a more normal level of value.

Concerning banking reform, discussion focussed on efforts to make the Indonesian banking reform agency stronger and more independent, a move that should rebuild both domestic and international confidence in the banking sector, he said.

He added that although the private sector overseas debt problem was not part of the IMF reforms, officials agreed that the problem needed to be quickly solved.

"Various approaches have been discussed, including Mexico's experience with its similar problem," he said.

"It was a very good meeting," said Dennis de Tray, the World Bank's chief representative in Jakarta.

He, however, indicated that there were complicated issues that needed further discussion.

"We cannot make a comment at this point ... until these very sensitive discussions have been finished," he said.

Ginandjar explained that further discussion would address fiscal issues related to import subsidies for basic commodities and on structural reforms.

Ginandjar said the government would revise its draft state budget for fiscal 1998/1999, which starts in April, to accommodate efforts assuring an adequate supply of food and essentials in the country.

"The need to assure a supply of food and other essentials at prices which do not burden the people should be accommodated in the upcoming budget for 1998/1999," he said.

"For this, a review is necessary to produce a realistic and efficient budget to overcome various economic problems as a result of the monetary crisis," he said.

The government on Jan. 23 revised an earlier 1998/1999 draft state budget originally outlined by President Soeharto on Jan. 6. The revised budget slashed fuel subsidies and affirmed the IMF- backed targets of economic zero growth and a 20 percent inflation rate.

Under a reform agreement with the IMF, Indonesia agreed to allow fuel prices to rise from April 1 with a phaseout of subsidies, which have drained government finances.

Relations between Indonesia and the IMF hit a low point early this month, resulting in the delay of its second US$3 billion tranche of a $43 billion IMF-sponsored rescue fund scheduled for March 15.

The relations started to turn sour in February as speculation mounted that the country was backtracking from the reform program, which includes the dismantling of monopolies, the scrapping of subsidies and a general opening up of the economy.

Indonesian plans to peg the rupiah to a foreign currency at a fixed exchange rate through the controversial currency board system further undermined the country's relations with the IMF and major donor countries.

The rupiah has fallen in value about 75 percent against the U.S. dollar since July.

IMF first deputy managing director Stanley Fischer said Friday that talks between Indonesia and the fund over the second $3 billion loan installment had been encouraging, but that the overall situation remained difficult.

"The Indonesian situation is still quite difficult," he was quoted by Reuters as saying in Los Angeles.

"All the signs are that they want to reach an agreement. We certainly do," he said, adding that the IMF was seeking an agreement that Indonesia could live by.

The IMF approved an Indonesian demand Friday to continue subsidizing imports of essential commodities and to maintain the monopoly status of the State Logistics Agency (Bulog). (08)