LoI sets Nov. deadline for IBRA debtors

The Jakarta Post, Jakarta

The government promised the International Monetary Fund (IMF) that it would take legal action against former bankers who misused trillions of rupiah in state funds, under a loan agreement it recently submitted to the IMF for approval.

Known as the seventh Letter of Intent (LoI), the agreement targets "legal and other enforcement actions by the end of November against all remaining noncompliant shareholders."

The shareholders are former bankers who allegedly absconded with some Rp 138 trillion (about $15.33 billion) in Bank Indonesia emergency loans and whose banks the Indonesian Bank Restructuring Agency (IBRA) was forced to take over.

Payments have been minimal in the four years since the ex- bankers agreed to repay the loans in return for not facing prosecution.

The November deadline marks the strongest threat against the ex-bankers following IBRA's plan to drop their criminal charges despite widespread doubt over their debt settlements.

Binding the deadline to the LoI also meant that its compliance was mandatory to obtaining further IMF loans.

The Washington-based IMF board of executives will meet early next month to review the LoI.

"A successful completion of the review will enable the next IMF tranche to Indonesia of SDR 270 million (about US$340 million)," said a statement from the office of the coordinating ministry for the economy on Wednesday. SDR or Special Drawing Rights is an account unit of the IMF, based on major national currencies.

If the LoI is approved, the IMF loans could be disbursed by late December, Finance Minister Boediono said on Thursday.

The seventh LoI actually refers to the government's quarterly report to the IMF over progress made in meeting LoI targets.

It is the third progress report since the fourth and last LoI signing in June. The government should have signed the report in September, however it was late on a number of targets.

The LoI represents, for the most part, Indonesia's economic reforms program, covering monetary and fiscal targets but also timetables on the sale of state companies and IBRA assets.

Chairman of the People's Consultative Assembly, Amien Rais renewed his criticism against the IMF, in what is now becoming a common response whenever the government signs an LoI.

"The IMF is a necessary evil but it is giving the wrong medicine," he was quoted as saying by AFP during a one-day visit to Singapore on Wednesday.

Highlights of LoI VII

On Fiscal and Monetary Policy

1. All June to September quantitative performance criteria and indicative targets met.

2. Fiscal policy remains on track with a deficit target of 2.5 percent to gross domestic product (GDP).

3. The government remains committed to fiscal consolidation to reduce public debt to sustainable levels.

4. Growth in base money is within the target range, as are the steady drops in inflation and a stable rupiah exchange rate.

On Privatization and Asset Divestment

1. The government finalized the sale of Bank Niaga and delayed the sale of Bank Danamon. The legal merger of five banks under IBRA was completed in October with an operational merger to follow next month.

2. As for state banks, the government is improving the transparency of Bank Mandiri's financial statements ahead of the bank's planned divestment. The government plans to announce the sale of Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI) in the next few months.

3. The government has launched the sale of its shares in telecommunications firm PT Indosat and pharmaceutical firm PT Indofarma, both to be completed by the end of this year.

On Public Debt Management

1. The House of Representatives has approved the Sovereign Debt Securities Law to allow the auctioning of government bonds.

2. House also approved plans to push back the maturity dates of government bonds in four state banks by up to 10 years under the reprofiling scheme.

3. Disagreement over the burden sharing between Bank Indonesia and the government on central bank loans that had been abused, is close to a settlement.

On the shareholder settlement program

1. The government will initiate legal and other enforcement actions by end of this month against all remaining noncompliant former shareholders of banks (ex-bankers) under IBRA.

On Anti-Corruption Commission

To push ahead with legal and judicial reforms, the government will propose to the House revised terms over the power of the anti-corruption commission as outlined under a previous bill.