Indonesia signs revised LoI with IMF

JAKARTA (JP): The Indonesian government on Thursday signed a revised letter of intent (LoI) with the International Monetary Fund, which would pave the way for the third disbursement of about US$400 million in loans around the third week of this month.

The new LoI is not substantially different from the LoI agreed on by the previous economic team on July 30, except in the incorporation of the 10-point economic recovery acceleration program designed by the new economic ministers.

The core program of the LoI remains the same: debt and corporate restructuring, bank reform, asset recovery, law enforcement and good governance in the public and private sectors.

The LoI, which basically spells out the country's economic reform measures to be implemented by the government within a certain period of time to recover the economy, was signed by Coordinating Minister for Economic Affairs Rizal Ramli and Acting Governor of Bank Indonesia Anwar Nasution in Jakarta, and was simultaneously signed by the IMF's first deputy managing director Stanley Fischer in Washington.

The LoI will last for six months instead of the four months set previously, and it will be reviewed every three months instead of two.

"The government of Indonesia and the IMF fully realize that a review period that is too close will be counter-productive to the efforts to accelerate economic recovery and to stabilize the financial sector," Rizal said in a brief press conference.

The rupiah has always been a target of speculation every time the IMF makes a review of the country's economic program. Sources said that Bank Indonesia had to sell dollars to defend the currency every time market sentiment turned negative.

Under the new LoI, the World Bank and the Asian Development Bank have also been given a greater role to help improve efficiency and productivity in the agriculture sector, while the IMF would now focus on macroeconomic and fiscal issues, which is its core competency.

The IMF has earlier been criticized for its deep involvement in the country's agricultural sector.

Rizal also said that under the new LoI, the government would accelerate the transfer of corporate loans from state-owned Bank Rakyat Indonesia (BRI) to other banks to allow BRI to focus on lending to small and medium-size enterprises (SMEs).

He added that any surplus revenue in the state budget would be used to finance infrastructure projects in rural areas and for the development of SMEs.

Rizal said that the new LoI put a high priority on development of the SMEs.

The 10-point economic program of the new economic team also puts top priority on the development of infrastructure in rural areas, in addition to boosting exports and establishing macro economic and financial stability.

"The IMF perceives that the government's economic team, although still new, has a clear and comprehensive program to accelerate the process of economic recovery as contained in the 10-point economic recovery acceleration program," Rizal said.

Rizal was not shy in boasting of his personal role in the negotiations for the revision.

"Being a strong critic of the IMF in the past, I possess a good leverage in negotiating with them," Rizal added.

The current economic team was a result of a major Cabinet reshuffle last month.

Rizal also said that for the first time in history, the draft of the LoI agreement was prepared by an Indonesian economic team.

Separately, President Abdurrahman Wahid praised Rizal's economic team for their success in signing the revised LoI agreement.

"Now we have more freedom from the IMF in preparing our program. Our relationship with the IMF under Kwik Kian Gie was very bad. But with Pak Rizal, the situation is completely different," the President said in New York referring to Rizal's predecessor.

The IMF board is expected to convene sometime in the middle of this month to vote on whether to approve the new LoI. The approval of the program would automatically disburse the Fund's next loan tranche.

The Fund's board of directors was supposed to convene at the end of last month, but Rizal requested a delay to allow the new economic team to study the previous LoI and to make some revisions because of "changing conditions" in the country.

The IMF is providing a $5 billion bailout to help finance the country's three-year economic program. The Fund has so far disbursed more than $700 million.

Rumors

Meanwhile, there were rumors in New York suggesting that the United Nations was pressing the IMF to delay its loan disbursement to Indonesia following the killing of its humanitarian workers in Atambua, East Nusa Tenggara, on Wednesday, by East Timorese ex-militiamen.

The IMF could not be reached immediately for comments.

IMF Jakarta representative John Dodsworth said after the signing of the LoI that it was not "the signature that counts but the implementation."

"So we look forward to seeing that implementation in the coming months," Dodsworth said.

Meanwhile, Anwar said that in regards to the monetary program, it was completely the same as the previous July LoI.

Anwar cited the three main elements of the monetary program as maintenance of the floating exchange rate system, inflation targeting, and acceleration of bank restructuring.

The currency market seemed to ignore the government's deal with the IMF, sending the rupiah even lower late on Thursday to Rp 8,400 per U.S. dollar compared to Rp 8,365 on Wednesday.

Dealers said that the dollar had also been strengthening against other currencies in the region.(rei/prb)