RI, IMF agree on new targets

JAKARTA (JP): Indonesia and the International Monetary Fund (IMF) have agreed on new economic targets and a more gradual reduction of subsidies for basic commodities, government sources said yesterday.

"We're nearing the conclusion," IMF first deputy managing director Stanley Fischer said separately upon arrival here yesterday afternoon.

Fischer said the negotiations between Indonesia and the Fund which started on March 18 had been going well.

"I came to review the progress that has been made and also to take advantage of the fact that there will be some bankers (creditors) here this weekend to review progress on the corporate debt issue," he told reporters at Jakarta's Soekarno-Hatta International Airport.

He added, however, that there would be further discussions on solving the corporate overseas debt problem.

An Indonesian official disclosed yesterday that the 1998/1999 state budget would allocate Rp 5.3 trillion (US$623 million) to subsidize basic commodities, including rice, wheat flour, soybeans, sugar, feedmeal and fertilizers.

The senior official, who has been taking part in the marathon meetings between the IMF and Indonesia's new economic ministerial team since March 18, declined to specify subsidies for other commodities such as medicines, fuel and electricity.

He said Rp 2.8 trillion of the total subsidy would be allocated for imported rice alone.

The subsidy on imported basic commodities will be based on an exchange rate of Rp 6,000 to the U.S. dollar, added the official, who insisted on anonymity.

The Jan. 15 IMF-brokered economic reform program required the government to sharply cut subsidies for food, fuel and other essential commodities beginning this month. But the cuts have been postponed indefinitely.

The government and the IMF have agreed to more realistic key economic targets for the 1998/1999 state budget, reflecting the current economic reality, another government official said.

He said inflation for the current fiscal year beginning this month was projected at 47 percent, up sharply from the original estimate of 20 percent.

The negotiations also targeted the economy to contract 5 percent, a drop from the zero growth originally envisaged, while average oil prices were projected to be $16 per barrel, down from the earlier assumed $17 per barrel.

The lower oil price assumption reflects a softening in global oil prices, which will result in lower oil revenues for the government, he explained.

Bank Indonesia (BI) Governor Sjahril Sabirin said yesterday the central bank's top priority was to stabilize the ailing rupiah and curb inflation by imposing a high interest rate regime.

"The high interest rate environment will be maintained until we reach a better exchange rate level," he said, declining to disclose the desirable level.

BI recently boosted its short-term promissory note (SBI) interest rates to as high as 45 percent per annum.

The rupiah has been under severe pressure over the past eight months, plunging to its lowest level of Rp 17,000 to the dollar in early January, compared to its Rp 2,450 pre-crisis level in July.

The increase in domestic interest rates has managed to slightly strengthen the rupiah, which has been hovering at Rp 8,000 to 8,500 in recent days.

The IMF team, led by its Asia Pacific director Hubert Neiss, has been in Jakarta for more than two weeks to review the country's economic reform programs.

The programs are categorized under monetary policy, banking reform, budget and subsidy, structural reform and private sector overseas debt.

The review will decide whether Indonesia is eligible to receive its second $3 billion tranche disbursement from the $43 billion bailout fund arranged by the IMF early this year. The payment was originally scheduled for March 15.

Fischer declined to indicate when a final agreement would be signed, but he said he would join the last round of the discussions to fine-tune details of what would likely be a revised version of the Jan. 15 reform package.

He said some important measures had been added to the new reform programs, reflecting greater "adaptability".

He added that the Fund had made similar adaptions in its programs in South Korea and other countries.

"Flexibility is not quite the right word. Adaptability probably is," he said in reply to questions as to whether the IMF was much more flexible with the amended program.

Earlier yesterday, Japan's Vice Finance Minister for International Affairs Eisuke Sakakibara met with Indonesian economic ministers at the office of Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

"I was updated (on the review talks)," he told reporters. He rejected to provide further comments. (08/gis/oka)