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)