Rizal says new LoI with IMF to be signed on Thursday

JAKARTA (JP): Coordinating Minister for Economic Affairs Rizal Ramli said on Sunday that the government and the International Monetary Fund (IMF) would simultaneously sign a new letter of intent (LoI) on Thursday.

Rizal said that the IMF board of directors was expected to meet two weeks from now to give its approval on the new LoI which would be followed by the disbursement of the IMF's next loan tranche.

"The (new) LoI is expected to be signed on Thursday," Rizal said during a press conference.

Rizal declined to provide details of the new LoI arguing that the IMF deputy managing director Stanley Fisher had yet to read it.

But he said that the new LoI, apart from a few changes, was basically the same as the one agreed on by the IMF and the previous economic team at the end of July.

The LoI contains a set of economic reform programs to be implemented by the government within a certain period of time.

Several government officials have earlier said that there would be no major changes in the revised LoI.

The new economic ministers discussed the proposed changes last week with the IMF Asia Pacific deputy director Anoop Singh and representatives from the World Bank and the Asian Development Bank.

Singh arrived in Jakarta on Wednesday after Rizal spoke with Fisher over the phone earlier on his plans to make some changes to the previous LoI because "the conditions now have changed significantly since the last review was made in July."

Rizal had also asked the IMF to delay its board meeting, initially scheduled for the end of last month, to allow the new economic team to study the July LoI to increase the government ownership of the program.

The plans to make a revision in the LoI had created some jitters in the financial market particularly because of Rizal's criticism in the past against the IMF.

But Rizal stressed that the new economic team would remain committed to the IMF-sponsored economic reform program.

The IMF pledged in January to provide the administration of President Abdurrahman Wahid some US$5 billion in bailout loan to help finance the country's three-year economic reform program.

The Fund has so far disbursed some $700 million, and it is expected to disburse another $400 million after the new LoI has been approved by the IMF board of directors.

Rizal said that the loan disbursement was very important because it signified the IMF support to the country which was crucial to help revive investor confidence in the economy.

"Our balance of payments is strong, export is strong. So it's not about the money," he said.

"The government of Indonesia needs the support of multilateral institutions like the IMF, the World Bank and the Asian Development Bank to accelerate the economic recovery," he said.

Rizal reiterated that although the current economic team was new, it was a solid team "with no non-sense approach and has a high commitment to the efforts to accelerate economic recovery and to implement the agreed (economic) target."

He also said that the IMF was very impressed and fully supported the proposal made by the new economic team, and expected the government to be able to immediately implement the program.

Separately, Singh confirmed that the Fund and the government had agreed to revise the previous LoI.

"There will be full continuity of the macroeconomic policy framework and there will be full continuity of structural aspects of the program," Singh was quoted as saying by Reuters.

"They reaffirmed the importance of banking sector reforms, and they reaffirmed the importance in the program of corporate debt restructuring."

Singh said the $400 million loan would only be disbursed after the IMF executive board had approved the revised LoI, adding that the Fund would try to avoid any delay.

"Next week we expect the revised letter will go to the executive board and it will be released simultaneously in Jakarta," he said.

"But only after the executive board has approved it will the money become available...we're trying to move very fast."

Singh declined to provide details of the revised LoI.

Singh was optimistic that Indonesia would move beyond its current consumption-based growth if investors regained confidence in the country.

"For that you need to gain full market confidence, you need to convince investors they should stop watching and waiting and you need capital flows to return to Indonesia."

"With persistent implementation of the program we will achieve that, there is no doubt."

Singh also expressed confidence Indonesia would achieve three to four percent economic growth this year but warned of inflationary pressures next year.

"On inflation we have to be very careful," Singh said.

But he said double digit inflation was an "unlikely prospect" in 2001.

The government expects inflation this year to be more than 8 percent compared to the initial forecast of 5-7 percent due to the planned fuel price increase in October.(rei)