Set limit on borrowing by regions: IMF
Set limit on borrowing by regions: IMF
JAKARTA (Agencies): The IMF on Friday reported some progress in negotiations with Indonesia on key issues holding up fresh loans since late last year, but repeated calls for curbs on direct borrowing by newly empowered regions.
International Monetary Fund Jakarta representative John Dodsworth said the IMF was still waiting for the government to respond on certain issues and pressed it to act on the politically sensitive issue of borrowing by the provinces.
"Although there is not yet agreement, some progress has been made in narrowing differences on the issues of decentralisation and amendments to central bank law," he told Reuters.
His comments come a day after Indonesia's chief economic minister, Rizal Ramli, complained that the IMF was pushing his government too hard on some issues which could not be so quickly addressed while the country was struggling to switch to democracy after decades of autocratic rule.
Rizal is due to meet IMF first deputy managing director Stanley Fischer and the new U.S. Treasurer as patience with Indonesia's recalcitrance over reforms appears to be starting to wear thin.
New agreement with the IMF is less important for the money -- around $400 million in loans -- than the impact it would have on the giant southeast Asian country's financial relations with the rest of the world.
Without a deal, already sagging confidence in the country's ability to pull out of its economic crisis would sink further.
Also, vital debt rescheduling with the Paris Club of official creditors would be blocked.
The IMF, along with other major donors, has been particularly nervous about the impact of poorly drafted new autonomy laws which took effect in January and which give regions wide-ranging powers, including the ability to borrow directly.
Dodsworth urged the government to set legal limits that would effectively block their ability to directly borrow, including offshore, and adding to Indonesia's already huge pile of debt.
He pointed out that the Finance Ministry, under a recent regulation, can set a limit on local government borrowing.
"The IMF position is that the ceiling -- excluding borrowing through the centre -- should be set at zero or a very low nominal amount for the first year of decentralisation," he said.
Persuading banks not to lend money was useful but not enough.
"The IMF is therefore encouraging the government to set a legally binding borrowing ceiling as a transitional measure during the first year of decentralisation," he said.
He stressed that the Fund did not want to prohibit regions borrowing completely, as long as they did so centrally where the Jakarta government could exercise control.
He added that the Fund was also waiting for the government to reply on some other key concerns, mainly relating to bank restructuring.
The IMF wants the government to sell off two major banks and also resolve an agreement it made with some of Indonesia's leading businessmen to help them bail out their banks.
That deal has come under heavy criticism for favouring the businessmen at the expense of the state.
Asset-backed bonds
Separately, a senior World Bank official said on Friday that Indonesia's plan to issue bonds backed by the sale of natural gas to Singapore could contradict the terms of its World Bank loan agreement.
Although the details have yet to be finalized, Indonesia has invited several banks to structure a securitized bond issue valued at up to $1 billion.
World Bank country director Mark Baird said the bank is awaiting more details of how the deal will be structured, but said it needed to see how it ranked compared to other sovereign debts.
"It needs to be worked out, but there is such a potential threat," he told Dow Jones Newswires, when asked if the bond clashed with the bank's loan conditions.
In theory, the bank's borrowers are required not to pledge their "national assets" to other creditors as a condition of their loans in order to ensure that World Bank loans rank senior, he said.
The bank recently scaled down its Indonesia program, saying it will lend around $400 million annually over the next three years, down from its average disbursement of $1.3 billion during the mid-1990s.
Indonesia's foreign public debt is already a huge $70 billion, and the government relies on loans from the World Bank and bilateral donor countries to balance its budget.
Government officials say their plan to securitize exports of natural gas from West Natuna to Singapore is an efficient way to refinance large domestic debts stemming from a costly bailout of the shattered banking sector.
But analysts say multilateral lenders to Indonesia may be dismayed by what is effectively a way of raising more debt, particularly after the IMF froze its lending program over Jakarta's failure to implement tough economic reforms.
The West Natuna gas sales to Singapore, which started Jan. 3, are expected to provide between $7 billion and $8 billion in revenues to the Indonesian government over the next 22 years.