Neiss urges interest rate reduction to fuel recover

Neiss urges interest rate reduction to fuel recover

JAKARTA (Dow Jones): Indonesia should be "a little faster" in
allowing interest rates to fall to help fuel a recovery, the
International Monetary Fund's top Asia Pacific official Hubert
Neiss said Monday.

Speaking to reporters as he arrived in Jakarta to lead the
fund's review of Indonesia's economic program, Neiss said: "The
(interest rate) trend is firmly downward and that's how it should
be."

He said one of the focus points of the review would be
"interest rate reduction to force the recovery."

Neiss' comments seem to contradict those contained in a recent
report from the IMF's board which urged Indonesia not to ease
rates prematurely. Neiss stressed there was no contradiction
however.

Neiss also said he sees room for the rupiah to strengthen
further despite the falling interest rates.

"There is scope for improvement (in the rupiah)," he said.

The rupiah has managed to gain ground despite the fact that
Bank Indonesia has been guiding interest rates lower at its
weekly central bank auctions. Interest rates for one month
central bank notes are at just over 32 percent now and dealers
expect another drop of as many as 100 basis points at this week's
auction Wednesday.

Monday, the rupiah broke below the Rp 8,000-level to a U.S.
dollar - its firmest level since early January - and is trading
at Rp 7,940 to a dollar in a late trading.

The second main emphasis of the review is the collection of
debt by the state banks in order to reduce the cost of bank
restructuring. "That is an important issue," Neiss said.

During the review with the Indonesian government, Neiss said
the IMF will set targets, deadlines and agree on methods to
recover the debt.

He also said the IMF would push the Indonesian government and
state banks to initiate bankruptcy filings and restructuring
against the 20 largest debtors of each state bank and the
Indonesian Bank Restructuring Agency.

"The cost of bank restructuring to the government is very
high," Neiss said. "So you have to make sure that you have as
much offset from recovery as possible."
In Indonesia's budget for this fiscal year ending March 31, 2000,
the government has pledged to generate 17 trillion rupiah through
asset recovery.

Elsewhere, Neiss said government delays in issuing bonds to
finance bank recapitalization were "technical."

He said the basic policy is in place and that the first
tranche of bonds will be released "very soon."

The IMF conducts bi-monthly reviews of its economic reform
program in Indonesia. Neiss expects that this review will be
completed in a week.

The completion of the review will pave the way for the IMF
executive board to approve the release of the next tranche of
funds. Neiss said that together with assistance from Japan's so-
called Miyazawa fund, the completion of the review will lead to
the disbursement of about $1 billion before Indonesia's elections
on June 7.

The June parliamentary elections are the country's first
multi-party elections in over three decades.

Neiss stressed that the elections shouldn't have any impact on
the IMF's economic reform program. "The program is proceeding on
its own basis. It shouldn't be hostage to the political
calendar," he said.