Macroeconomic targets need revising: Neiss

JAKARTA (JP): Macroeconomic assumptions of the International Monetary Fund's economic reform program for Indonesia will have to be adjusted due to the country's worsening situation, IMF Asia Pacific director Hubert Neiss admitted yesterday.

"Yes, we have to make adaptations in the macroeconomic framework to the new situation that unfortunately is even weaker than before," he told media following a 45-minute meeting with President B.J. Habibie.

Neiss arrived in Jakarta Tuesday for a marathon round of talks with several ministers, opposition leaders and foreign ambassadors until Saturday.

He is reviewing the country's situation following the recent bloody unrest, and his report will be the basis for the IMF's board of directors to decide on the disbursement of another US$1 billion in bailout funds.

Neiss said falling production, skyrocketing inflation and uncertainty over the rupiah exchange rate had caused a further decline since his last visit.

He declined comment on whether the rupiah year-end exchange rate target of Rp 6,000 to the dollar was still realistic.

"We don't know at this point what is the good forecast for the exchange rate," he said.

The rupiah is currently hovering at about Rp 10,500 against the U.S. dollar, from Rp 2,450 in July last year when the crisis began to unfold.

Neiss stressed there was no need to revise the structural reform program.

"The very detailed and far reaching structural reforms will stay as it was originally agreed."

He added that financial reform was the centerpiece of the IMF reform program and had become an urgent necessity.

"There will be no need for revision, but there is a need for strengthening and possibly acceleration in the rehabilitation of the financial sector."

He explained that it would take time for the Indonesian economy to recover, with much depending on a return in investor confidence and political stability.

"Eventually, what is needed is a return of capital, not only foreign capital but that which belongs to Indonesians."

Neiss said another important topic to discuss with the new government was monetary policy.

"That is very important because we have had serious increasing inflation which is very important to stop. We have to restrain monetary expansion."

He said he would discuss the best possible ways to solve the problem with Bank Indonesia.

"The two important areas to cover are the budget and the monetary policy."

He added that the discussion would also cover the country's overseas private sector debt.

"We can expect some first concrete results will emerge," he said. He added that the proposed Mexican model for resolving the debt conundrum offered several attractions to creditors and simultaneously limited the financial load of the government. (rei/prb)