Release of funds week away: Fisher

Release of funds week away: Fisher

JAKARTA (Dow Jones): A deal between the Indonesian government and the International Monetary Fund could still be a week away, the IMF's Deputy Managing Director Stanley Fischer said yesterday.

But even then, disbursement of a second $3 billion tranche to Indonesia could take weeks as the Fund will observe a "period of testing" of Indonesia's commitment to reform before releasing the funds.

"We need a time between the agreement and the date of disbursement to make sure that the actions (the Indonesians have agreed to) have been taken," Fischer said in an interview with CNBC Asia Business News.

"What the precise date is isn't clear, but there'll be a period of testing,"

Fischer was in Jakarta to take part in what has turned into a marathon, three-week long IMF review of Indonesia's reform program. The review is being done to pave the way for the releasing of the second tranche, which was postponed last month over concerns of the slow-pace of reform.

Fischer left here yesterday.

Fischer said that "a lot of progress" has been made in the review of the five key areas of the reform program, but that there are "a few remaining points."

The five areas have been grouped into: monetary policy; the budget and subsidies; banking reform; structural reform; and resolution of Indonesia's private-sector debt.

Fischer said that resolution of this $68 billion in debt was particularly "complicated" as it involves negotiations between Indonesian debtors and their foreign creditors.

He noted that the IMF was putting in place a framework for debt repayments based on a model used in Mexico in the early 1980's.

Still, he stated, the IMF believed "there had to be progress" in debt talks scheduled between the lenders and borrowers in the coming weeks.

Concerning monetary policy, Fischer said that both Indonesia and the IMF have agreed to implement a "very tight" regime in order to strengthen the rupiah.

In this area, Indonesia could learn from the examples of neighboring Thailand in South Korea, Fischer said. Both have been hit by devaluations in the past 12 months.

"In Thailand and South Korea, we've seen that you can get the currency to strengthen substantially if you stand firm on monetary policy. We believe the Indonesians will do that," Fischer said.

Fiscal measures have been essentially agreed upon, Fischer said, though he did not elaborate, and banking reforms have already started to be enacted.

On Saturday, Indonesia's Finance Ministry announced that another seven banks had been shut and another seven placed under the management of a private restructuring agency, as part of a plan to clean up the system.

Fischer said that a new bankrupcty law will be set up both to aid banking reform and to resolve the private-sector debt problem. Lender's fears that Indonesian companies simply will not pay should be assuaged by an improved ability to seize borrowers' assets.

"If companies really can't pay, they'll have to go into bankruptcy and the creditors will take their assets. So there won't be any easy way out for companies that have assets and don't pay," Fischer said.

The final area, concerning strucutural reforms, Fischer said will stick to the terms agreed to under an earlier Jan. 15 pact between the IMF and Indonesia.