Indonesia signs accord with IMF, clearing way for new loans

Indonesia signs accord with IMF, clearing way for new loans

JAKARTA (JP): The government and Bank Indonesia signed a new
agreement with the International Monetary Fund (IMF) on Thursday,
clearing the way for the fund to resume financial support to the
country.

In the Memorandum of Economic and Financial Policies, the
government promised to undertake ambitious structural reforms in
numerous areas, including the banking system; fiscal and trade
policies; fiscal decentralization; corporate restructuring; legal
reform and governance; the energy sector; investment policy;
agriculture policy and forestry.

The agreement also detailed corrective measures for Bank
Indonesia, including clarifying the central bank's financial
position, improving its internal controls and strengthening its
supervision standards.

Following the signing of the agreement, the IMF's executive
board is expected to meet on Feb. 4 to approve a total of US$5
billion in loans to Indonesia to finance its reform program over
the next three years, IMF Indonesia representative John Dodsworth
said.

Speaking to journalists after the agreement was signed,
Dodsworth said the IMF would likely release the first installment
of the loans, amounting to $400 million, the same day as the
meeting.

"We are ready to go ahead now," Dodsworth said. "I think we
would be wrong to hold up support for the new government because
of faults of the past."

The IMF suspended loans to Indonesia last September after
international confidence in the country plummeted in the wake of
the high-profile Bank Bali corruption scandal, which allegedly
involved members of former president B.J. Habibie's inner circle.

Dodsworth said the IMF was satisfied with the government's
investigation of the Bank Bali case.

In the new agreement, the government said its investigation of
the Bank Bali scandal was "being credibly advanced" and that it
was improving governance in the banking system to prevent a
recurrence of the scandal.

In another move to improve the supervision of commercial
banks, Bank Indonesia will provide the IMF with monthly bank-by-
bank data beginning with data from the end of December 1999, as
stipulated in the memorandum.

The government and BI forecast that the banking system would
be restored to health by the end of 2001, with all existing banks
having a minimum capital adequacy ratio of 8 percent.

To enhance transparency in the Indonesian Bank Restructuring
Agency, the government agreed to have the agency audited. The
result of the audit, which will cover IBRA's status as of
December 1999, will be published by the end of April. This will
be followed by regular quarterly and annual audited financial
statements.

In its trade policy, the government pledged to continue
cutting import tariffs so that by the end of 2003, Indonesia
would have a three-tiered tariff structure of zero percent, 5
percent and 10 percent for all goods, excluding alcohol and
automobiles.

The government also said it had developed a strategy to
provide fresh momentum to corporate restructuring, which would
actively involve both IBRA and the Jakarta Initiative Task Force.

Cases which cannot be handled expeditiously by IBRA will be
transferred to the task force. If the process then continues to
move too slowly, the cases may be referred to the Attorney
General's Office for the initiation of bankruptcy proceedings.

According to the memorandum, the bankruptcy court's reputation
for corruption has damaged confidence in the legal system and
halted crucial corporate restructuring.

In a bid to address this problem, the government will enhance
the role of the Attorney General's Office, reform the court
system and seek parliamentary approval for all appointments to
the Supreme Court.

In addition to structural reforms, the government's medium-
term policy will be focused around four main pillars: ensuring
price stability, revamping bank and corporate restructuring,
rebuilding Indonesia's institutions and improving the management
of natural resources.

The government is also committed to maintaining strong
macroeconomic policies in order to achieve the targeted economic
growth of between 3 percent and 4 percent in the 2000 budget
year, and between 5 percent and 6 percent in the medium term.
(rid)