RI will have no problem obtaining IMF money

RI will have no problem obtaining IMF money

JAKARTA (JP): The International Monetary Fund (IMF) Asia
Pacific director Hubert Neiss said Saturday that it was highly
unlikely that the next installment of the rescue package brokered
for Indonesia by the fund would be further delayed.

Neiss indicated that the economic reform program and the
latest political developments were very positive and were being
welcomed not only in Indonesia, but also in the rest of the
world.

"I think everybody agrees that substantial progress on the
political side has been made within a very short time... on
human rights, labor rights, and on other issues," he told a media
conference at the end of his four-day fact finding mission here.

The third tranche of US$1 billion was initially scheduled to
be handed over to Indonesia on June 4, but was delayed because of
the political turmoil which led to the resignation of former
president Soeharto and the ascension of his long-serving aide
B.J. Habibie to the presidency.

The IMF is committed to providing $10 billion of the US$43
billion bailout fund which the agency brokered to bail out
Indonesia's ailing economy.

The IMF has so far disbursed $4 billion of the $10 billion
promised.

Release of the aid is crucial because a number of other
multilateral and bilateral donors are taking their lead on
Indonesia from the IMF. Should the IMF decide to resume payments,
approximately $33 billion in aid pledged by the World Bank, Asian
Development Bank (ADB) and major donor countries will also become
available.

Although Neiss has often said the IMF mandate was for economic
affairs, he stressed that social and political stability could
not be neglected.

"Therefore, this (political aspect) is part of an overall
assessment," said the Austrian economist.

Neiss will arrive in Washington on Monday to submit his report
to the IMF board of directors. The board will then decide whether
to resume payments at the program review meeting, which is
expected to take place in the second or third week of June.

"I'm always optimistic," he said when asked about the
disbursement of aid and the prospects for economic recovery.

He pointed out that Indonesia has a first rate economic team,
and that the new President has given his full support to the
process of economic reform.

"So there is a clear road ahead for efforts to continue the
program," he said.

He also explained that with the Indonesian economy
deteriorating rapidly in the wake of political unrest, efforts to
arrest the decline and to initiate a recovery must be taken as
soon as possible.

"Every week delayed will make it more difficult," he said,
adding that during his meeting with several independent
Indonesian economists, most had projected the country's economy
would decline by at least 10 percent this year.

"I have no reason to dispute their forecasts," he said.

He explained that although it would be an enormous task for
the Indonesian government to arrest deterioration in the economic
situation and to initiate a recovery, the IMF, World Bank and the
Asian Development Bank would do their best to assist in this task
through both technical and financial assistance.

"We have pledged our full support to Mr. Ginandjar and his
economic team," he said.

Ginandjar Kartasasmita, the country's Coordinating Minister
for Economy, Finance and Industry, was present along with ADB
director Shonji Nishimoto and IMF Jakarta representative Khadim
El-eyd at yesterday's media conference.

"I'm happy to say that we are most impressed with the economic
team which is led by Minister Ginandjar, and there are many
encouraging signs of political reform under the leadership of
your new President," Nishimoto said.

He expected the ADB to quickly extend the necessary support to
Indonesia, particularly aid to help strengthen the banking sector
and to provide a social safety net.

Ginandjar said his first priorities were to deal with the
urgent situation and ensure that sufficient essential food items
were always available.

The IMF has agreed that Indonesia can continue to subsidize
essential food items. Under a previous agreement between the
country and the IMF, all such subsidies were to be abolished by
October 1998.

"Deadlines are never absolutely firm, they're always adjusted
according to new circumstances," Neiss said.

He explained that due to a further decline in the rupiah
exchange rate, funds allocated in the budget to maintain the
subsidies would have to be increased because most of the
subsidized goods were imported.

"So the most important thing is to revive confidence and
strengthen the exchange rate. That is a basic requirement to make
the recovery program work," he said.

However, he was not able to predict how the exchange rate
would react in the coming months, pointing out that it would
depend largely on how quickly the recovery efforts were launched
and how long it took investor confidence to return.

He also added that finding a solution to the country's
overseas private sector debt problem was crucial to reviving
confidence in the economy.

Under the 117-point IMF economic reform program agreed with
Indonesia early last month, the rupiah was expected to stabilize
at Rp 6,000 to the U.S. dollar by the end of this year. The
currency is currently trading at around Rp 10,500 per dollar,
compared to Rp 2,450 in July last year before the crisis first
broke.

Neiss said that other macroeconomic assumptions including
economic growth forecasts and the projected inflation rate would
have to be revised because the economy was now much weaker than
when the reform program was last discussed.

"A number of assumptions can no longer be defended ... we want
to build the program on realistic assumptions," he said, adding
that the details would be discussed by the government and the IMF
technical team expected to arrive here soon. (rei)