New agreement set to be signed today

JAKARTA (JP): The government is expected to announce the details of its newly revised agreement with the International Monetary Fund (IMF) after the monthly cabinet meeting today.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said Monday that both parties had finalized their agreement and would simultaneously disclose the details of the economic reforms to the public.

But Ginandjar declined to say whether President Soeharto himself or a minister on the President's behalf would sign the letter of intent which revises the Jan. 15 reform package.

"After the agreement is reached we will publicly announce it ... to enable the public to follow the implementation of the program closely," Ginandjar said after attending a meeting of the Economic and Monetary Resilience Council at Bina Graha presidential office.

The council, chaired by President Soeharto, was established to monitor the implementation of the reform package. Its members include Ginandjar, Minister of Finance Fuad Bawazier, Governor of Bank Indonesia Sjahril Sabirin, Widjojo Nitisastro, Tanri Abeng and businessman Anthony Salim as secretary-general.

Ginandjar said President Soeharto had contacted several foreign leaders, including Japanese Prime Minister Ryutaro Hashimoto, Singapore's Prime Minister Goh Chok Tong and Australian Prime Minister John Howard to inform them of the new agreement.

Goh notified Soeharto on his country's readiness to use US$3 billion of its $5 billion bilateral aid commitment to Indonesia to guarantee Indonesia's letter of credits (L/Cs) for much-needed imports such as medicines, industrial materials, spare parts and foodstuffs.

"Malaysia has also expressed its readiness to give $500 million for guaranteeing Indonesian imports," Ginandjar said.

Squeezed by a regional economic crisis, Indonesia turned to the IMF for assistance last October. Backsliding by the government on reforms in return for an IMF-led rescue package of $43 billion led to a new accord which was signed by President Soeharto on Jan. 15.

But differences emerged between the two sides over Indonesia's budget and currency management, prompting the IMF to postpone the disbursement of the second $3 billion tranche of the bailout fund.

Safeguards

IMF First Deputy Managing Director Stanley Fischer said in Kuala Lumpur on Monday that the IMF's new program with Indonesia would include safeguards to ensure Jakarta undertook agreed-upon economic reforms before it received money.

Fischer, who arrived in Kuala Lumpur Sunday after four days of visit to Jakarta, said the safeguards would enable the IMF's executive board to determine if Indonesia was following through on the reforms before it made any payments to help the ailing economy.

"What the world needs to see is not signatures but performance, and that's what we will be looking for," Fischer told reporters in the Malaysian capital after meeting Deputy Prime Minister Anwar Ibrahim.

"When an agreement is reached, and I expect one will be reached, you will see some further safeguards that are contained in the program to make sure that it is carried out," Fischer was quoted by Reuters as saying.

Asked what kind of safeguards would be built-in, Fischer said: "Much more careful monitoring, agreed monitoring between us and the Indonesians to make sure that measures which have been committed are undertaken."

The fund's executive board will meet two or three weeks after the signing of a new letter of intent, but will only approve the program if reform measures are underway.

"There are a lot of prior measures, actions which would be taken between the time the letter of intent is signed and the time we go to the board, so a lot would be done by the time the board makes an agreement to make the payments," Fischer said.

Fischer welcomed Indonesia's decision to freeze the licenses of seven banks and place seven others under the management of the regulatory Indonesian Bank Restructuring Agency.

"It's very important. It's a step toward, a major step toward cleaning up the banking system, to restoring it to health," he said.

"It also happens, it wasn't intentional, that several of the banks that were taken over are politically well-connected but there was no favor shown, and that's a very important component of the program."

Two of the banks are partly controlled by a cousin of President Soeharto. Two other banks are controlled by a businessman whose brother is married to one of Soeharto's daughters. All four banks had their licenses frozen.

Separately, World Bank vice president for Asia and the Pacific Jean Michel Severino and country director for Indonesia Dennis de Tray noted here Monday that it was critical for Indonesia to have a package of policy measures that would very much build on what had already been discussed.

The implementation of the reform would give more confidence to the market, domestic and international, and help restore growth, Severino told a news conference.

"But we also need a package which addresses the core social problems of the country and help the poor people cope with the social impacts of the currency turmoil," Severino added.

"I think the government is very aware it is expected to act ... One is going to see confidence only on the basis of facts.

"One should give the benefit of the facts and the time to this new government and see and judge what they are doing on the basis on what they deliver," Severino said.

De Tray said the Indonesian government recognized that there were no silver bullets, no magic medicine, to rectify the situation at this stage.

"The government is extremely aware of the fact that it needs to convince the market, both domestic and international, of their sincerity in implementing this program. They are aware of the challenges ahead them.

"This program in itself isn't going to restore the confidence, it is the government's commitment to implement it, the government's action on the ground that will slowly rebuild that confidence. The more transparent they implement it, the quicker the confidence will come back," de Tray said. (prb/rid)