Indonesia Releases New Letter Of Intent To IMF (fwd)

[Robert Weissman <rob@essential.org>]

October 20, 1998
Indonesia Releases New Letter Of Intent To IMF
Dow Jones Newswires
JAKARTA -- The Indonesian government has pledged to put top priority on
ways
to achieve a recovery in the country's gross domestic product, in the
latest
letter of intent signed with the International Monetary Fund on Monday.
The government expressed in the letter, which was released to the press
Tuesday, that stimulating economic output has become its main task.
It also said that strengthening programs to protect the poor from the
adverse
impact of the currency crisis will be given emphasis.
The letter of intent, signed after the completion of the monthly review
conducted by IMF, cleared the way for a further disbursement of $1 billion
by
the fund.
The government said real GDP fell about 2% on a seasonally adjusted basis
between the second and third quarters. The decline was in line with
expectations and much less than in the two preceding quarters.
"We believe that the decline in output is now bottoming out," the
government
said.
The government stated it will continue adhering to the monetary program
already established for the remainder of 1998. It, however, is concerned
about
the impact of high interest rates on the embattled banking system,
including
the effects of negative spreads between deposit and lending rates, which
are
adding to the banks' insolvency.
Interest rates are, however, declining, led by the slide in the rate on
one-
month central bank certificates by about 10 percentage points to below 60%
since early September. Meanwhile, the monthly inflation rate fell to 3.75%
in
September from 6.30% in August and 8.56% in July.
Another encouraging development is the rupiah's strengthening to 7,700
rupiah
(IDR) to the dollar by mid-morning Tuesday from an all time low of
IDR17,000
in mid-May when Jakarta was rocked by massive riots.
Taking into account the increase in base-money supply allowed under the
monetary program from October to December, the government sees room for a
further gradual reduction in interest rates in coming weeks, provided the
rupiah remains strong and inflation falls further.
"However, in order not to jeopardize the stability that is being achieved,
monetary policy will remain flexible and would be tightened if there are
signs
that inflation is not declining or if the exchange rate weakens," the
government said.
The government also reiterated its pledge not to impose any restrictions on
capital flows. It won't propose the surrender of export revenues or impose
a
repatriation requirement as these measures could undermine confidence and
prospects for further capital inflows.
The government intends to strengthen monitoring systems for
foreign-exchange
transactions in order to broaden the coverage of data collection especially
with regard to capital flows, improve transparency, and better assess the
short-term exposure of corporate and banking sectors. It added that the IMF
will provide technical assistance for the purpose.