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."