Indonesia signs new LoI to receive $400m aid from IMF

JAKARTA (JP): The government signed a new letter of intent (LoI) with the International Monetary Fund (IMF) on Monday, paving the way for the next disbursement of IMF funds.

The LoI is attached to the so-called Memorandum of Economic and Financial Policies (MEFP), which basically outlines a set of key economic measures to be completed by the government over the next couple of months.

The LoI and the MEFP document will be immediately sent to IMF Headquarters in Washington to be studied by its board of directors, which is scheduled to convene in the third week of August to decide whether to accept it.

If the board approves the new LoI, the fund will disburse another US$400 million of the $5 billion bailout aid signed in January this year to help finance the country's three-year economic reform program. The IMF has so far disbursed more than $730 million.

The LoI, the third since President Abdurrahman Wahid took power, was signed after the government completed certain key economic measures set under the previous MEFP document.

The letter was signed by Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie, Minister of Finance Bambang Sudibyo and acting governor of Bank Indonesia Anwar Nasution.

Joshua Felman of the Jakarta office of the IMF said that among the important components of the new LoI was the government's strong commitment to accelerating the sale of assets under the Indonesian Bank Restructuring Agency (IBRA).

The MEFP states, " ... by the end of September, IBRA's new (governing) board will approve a time-bound strategy for the disposition of all assets by its sunset date of the end of February, 2004. As part of this effort, international firms have been engaged to develop specific asset disposal strategies for all assets in the IBRA-controlled holding companies."

IBRA has been criticized for its slow progress with the asset disposal. The agency has received various forms of assets worth some Rp 600 trillion from domestic banks and is mandated to recover the assets to help raise cash for the state budget.

IBRA is targeted to raise some Rp 18.9 trillion in the current April-December budget year. The agency announced on July 19 a quarterly schedule of asset sales.

It raised over Rp 4 trillion in the April-June period quarter.

The MEFP says that another Rp 7 trillion is projected for the September quarter and Rp 8 trillion during the final quarter of this year.

The MEFP also discloses measures to be taken against IBRA's noncooperative debtors.

It said that the attorney general had commenced legal action against noncooperating owners of closed down Bank Pelita, Bank Deka, Bank Centris and Bank Istimarat, who have not reached an agreement with IBRA to settle their obligations.

"The cases will be brought to court during August," the MEFP said.

It added that owners of another group of four closed down banks would also be taken to court in October if they failed to reach an agreement with IBRA by September.

In macroeconomic policies, the MEFP said: "The macroeconomic framework for 2000 is being maintained. Growth and price development continue to be consistent with that framework.

"Although the market sentiment turned unfavorable in recent months, we are confident that 3 percent to 4 percent growth and the other key macroeconomic targets for 2000 can still be broadly achieved. The President has assured us that there will be clarity and consistency in the implementation of the economic program, which are crucial to regaining market sentiment."

The rupiah has been badly hit during the past several months, falling to about 9,000 per U.S. dollar, compared to the budget assumption of Rp 7,000 per dollar.

The drop in the value of the rupiah has raised some concerns that the government's 2000 macroeconomic targets would be hard to achieve.

The MEFP document also says that the government is pressing ahead with the restructuring of the country's corporate debt.

It says that the Jakarta Initiative Task Force (JITF) has managed to restructure some $5 billion debt, and expects to restructure another $3 billion to $5 billion in debt by the end of December.

"The strategic objective is to restructure a total of $12 billion in debt by April 2001," it says.

Meanwhile, Kwik said that all ministers and related government officials were committed to implementing the new LoI by the set deadline.

But he said that the commitment was based on best efforts. He said that because implementing the LoI was not like an exact mechanism like in chemistry, there would be some factors causing delays.

"We will keep announcing to the public what the factors are," he said.

The government was earlier criticized for making delays in implementing several key economic reforms. The delay had prompted the IMF to also cancel the fund disbursement.

Kwik also said that the signing of the third LoI by the July 31 deadline should not be seen as an outstanding performance that would automatically revive confidence in the economy.

"Over expectation should be avoided," he said. (rei)