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)