Indonesian monopolies must go, IMF official says

Indonesian monopolies must go, IMF official says

SEOUL (Reuters): Indonesia's politically sensitive monopolies
still have to be dismantled, but its reform program remains
generally on track, a senior International Monetary Fund official
said yesterday.

Dismantling monopolies and ending preferential treatment for
certain companies was essential to the success of the IMF's
US$40-billion program in Indonesia, the Fund's Asia and Pacific
Director Hubert Neiss said in an interview.

"It's a symbol that the government has changed course and is
serious in shaping the reform process, and that is essential for
market psychology," Neiss said.

"(The emphasis will be) on financial restructuring and on
various structural reforms in the real sector -- dismantling of
monopolies, discontinuation of special tax and credit treatment
for certain firms..."

Monopolies covering such politically sensitive issues as
cloves, associated with President Soeharto's youngest son, and
plywood have been technically abolished. Monopolies and subsidies
for other commodities other than rice are due to disappear by
Oct. 1.

Last week's riots in Medan over fuel and power price increases
sent shudders across Asian markets as the Indonesian rupiah
plunged to touch the 10,000/dollar level.

But if the reform program stays on track the rupiah should
strengthen back to the 6,000 level that Jakarta's budgetary
projections are based upon, Neiss said.

"If confidence returns, it is possible and feasible that the
exchange rate will return to levels we had assumed in calculating
the budget," he said.

An agreement reached last weekend in Tokyo between Indonesia
and its international bank creditors to roll over part of the
country's $80 billion in corporate debts is a "significant
achievement", said Stanley Fischer, deputy managing director of
the International Monetary Fund.

In an interview in Tuesday's edition of the Financial Times,
Fischer was also quoted as saying it should help underpin the
rupiah.

Neiss said Jakarta was keeping to its end of the deal this
time.

"One important element is that the economic reform program is
on track, that all the measures that were agreed upon are
implemented fully and on time," said Neiss, who was in Seoul to
consult with government officials about South Korea's $58.35
billion IMF program.

"I should say that so far this has been fully the case. All
measures agreed to... have been implemented," he said.

"There is, of course, political risk to the program. That
everybody knows and we all have to live with," Neiss said.

Neiss said the government and the IMF had agreed that last
week's fuel and power rate increases would be put into effect in
the early part of the fiscal year that began on March 31.

"The precise timing was a decision by the government."

The monetary part of the program was vital to contain the
threat of hyper-inflation in Indonesia, he said.

"The problem in Indonesia is that, because of past
developments, the country is on the brink of hyper-inflation. And
everything has to be done to prevent that because that would
inflict much heavier damage on the people."