[stop-imf] IMF $ for Indonesia
Robert Weissman
rob@essential.org
Sat, 5 Feb 2000 06:48:01 -0500 (EST)
This release is on the IMF web site at
http://www.imf.org/external/np/sec/pr/2000/PR0004.htm
For more information, see Indonesia and the IMF
Press Release No. 00/4
February 4, 2000International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA
IMF Approves US$5 Billion Extended Arrangement for Indonesia
The International Monetary Fund (IMF) approved today a three-year, SDR
3.638 billion (about US$5 billion) Extended Fund Facility to support
Indonesia's economic and structural reform program. Of the total, SDR 260
million (about US$349 million) is available immediately, and further
disbursements will be made available on the basis of performance targets
and program reviews in the period ahead.
At the conclusion of discussions by the IMF's Executive Board on
Indonesia's economic and structural program, Stanley Fischer, First Deputy
Managing Director, made the following statement:
"The Indonesian authorities are embarking on a bold and comprehensive
program aimed at restoring growth, entrenching low inflation, reducing the
public debt, phasing out the dependence on exceptional financing, and
normalizing relations with private capital markets.
"The program envisages continuity in monetary and exchange rate policies
that have gained credibility as they have delivered low inflation,
strengthened the rupiah, and facilitated declining interest rates. As
confidence improves, and risk premia fall, there is room for further
declines in interest rates, which remain high in real terms.
"The proposed fiscal deficit of 5 percent of GDP for FY 2000 strikes a
careful balance between supporting the recovery and starting fiscal
consolidation. Equally important are the tax reform measures to help
rebuild Indonesia's tax base over the medium term. The authorities have
also decided to reduce the untargeted fuel and power subsidies on a phased
basis over this period. They are seeking to protect low income households
temporarily from the associated price increases.
"The authorities have fully recognized that fiscal decentralization needs
to be carefully managed to meet the political imperatives while
maintaining fiscal neutrality.
"The reform program gives much greater direction to bank and corporate
restructuring which should be carried forward in a more integrated manner
under the auspices of the newly established Financial Sector Policy
Committee. There is much strengthened emphasis on loan collection and
asset recovery which need to be carried forward forcefully by IBRA. In
this regard, IBRA's independence is imperative. The measures to change the
incentive structure facing noncooperative debtors, together with the
authorities' anti-corruption efforts, should help impart a much needed
momentum to the debt restructuring process.
"The program includes a range of other structural measures. Institution
building and governance are being given high prominence; privatization and
energy sector reforms will help improve efficiency and strengthen public
finances; and improved management of the natural resources will be given
much more importance.
"The Fund, the World Bank, and the AsDB have collaborated closely in the
discussions with the authorities on all the key elements of the program,"
Fischer said.
ANNEX
Background
Much was achieved under the previous extended arrangement (see News Brief
No. 98/31), when Indonesia made significant progress in restoring
macroeconomic stability, dealing with the financial crisis, advancing
structural reforms, and assuring food security. The macroeconomic
achievements included the virtual elimination of inflation, stabilization
of the rupiah, and a recovery in foreign exchange reserves.
Despite these gains, more remains to be done to revive the real economy
and lay the foundation for a sustained recovery that would increase
employment and reduce poverty. These challenges constitute the principal
agenda of the authorities' comprehensive economic program, supported by
the IMF, that aims to accelerate the restructuring of Indonesia's economy
and meet the remaining challenges.
Medium-Term Policy Strategy
Indonesia's Fund-supported three-year program has four main features (see
"Indonesia Letter of Intent, January 20, 2000" at
http://www.imf.org/external/NP/LOI/2000/012000.HTM). First, the program is
designed to make Indonesia's macroeconomic policy mix fully supportive of
recovery while entrenching price stability. Second, the program is
designed to reinvigorate bank, corporate, and other restructuring policies
that are crucial to sustaining an economic recovery and achieving lasting
poverty reduction. Third, Indonesia's program seeks to rebuild key public
institutions which will strengthen the nation's capacity to implement
economic and social policies with popular support, transparency, and good
governance. Fourth, the program is designed to improve natural resource
management, arrest the long-term deterioration in the environment, and
ensure the sustainable use of natural resources for Indonesia's future
generations.
Macroeconomic Policies Under the Program
The macroeconomic framework seeks to restore an annual growth rate in the
vicinity of 5-6% by 2002, with an annual inflation target of below 5%.
Although Indonesia's current account would weaken over the next several
years as investment gathers pace, official financing and improvements in
private capital flows should offset the decline in the current account
surplus. The government debt-to-GDP ratio should decline by 2004 to around
65% from its recent peak of 100%, benefiting from falling interest rates
and asset recoveries by the Indonesian Bank Restructuring Agency (IBRA).
Key to attaining these objectives, however, will be a range of fiscal
policy measures.
In FY 2000, the budget deficit of 5% of GDP seeks to strike a careful
balance between supporting the economic recovery and starting the process
of government debt reduction. While the budget considers gradual reduction
of untargeted subsidies, it also proposes social safety measures to
protect small households from the impact of the lower subsidies. Social
spending will also include strengthening of targeted poverty-alleviation
programs, supporting rice distribution, and providing health, education
and employment services. Civil service wage reforms are envisioned, which
are expected to be accompanied by anti-corruption efforts. Additionally,
fiscal decentralization is to be implemented by June 2001 in a way that it
is consistent with Indonesia's Regional Governance and Fiscal Balance
Laws, and preserves the principle of fiscal neutrality.
Monetary and exchange rate policies are expected to continue to be fully
supportive of the recovery process. The program for 2000 has been
formulated to accommodate the anticipated higher growth, and private
credit is expected to recover as bank and corporate reforms take hold.
Financial and Corporate Restructuring
Banking and corporate sector reforms are at the heart of Indonesia's
economic program, and the government has adopted a bold agenda. The
Financial Sector Policy Committee has been established with the mandate to
provide leadership and direction in banking and corporate restructuring.
The key objectives in bank restructuring efforts are to capitalize all the
banks to 8% CAR by end-2001, as a precondition for eventually replacing
the comprehensive guarantee scheme with a self-financed deposit insurance,
to enhance efforts to restructure state banks, to ensure better governance
and supervision of the banking system and IBRA, to deepen bond and equity
markets, and to reinforce asset recovery efforts by IBRA.
In the corporate sector, the government has developed a bold new strategy
to give fresh momentum to corporate restructuring that will include an
active role for IBRA, and establishes procedures under which the
government may direct non-IBRA-led cases to the Jakarta Initiative Task
Force (JITF), and may refer cases to the Attorney general for the
initiation of bankruptcy proceedings against those debtors who refuse to
negotiate in good faith. Additionally, efforts to institute strong
anti-corruption measures are also being taken.
Other Structural Policies
The new government has reviewed the privatization process, and adopted a
new program for FY2000 driven primarily by efficiency rather than
budgetary considerations. Other structural reforms envisioned by the
government include continuing and accelerating initiatives to improve the
performance of Indonesia's energy sector, improving the domestic business
environment to revive foreign direct investment, designing agriculture
policy measures to maintain food security and promote efficient
production, creating a strategic plan and consultative process to
establish a national forest program that develops transparent and
rules-based procedures for conservation of the remaining natural forests,
and, more generally, improving environmental regulations and natural
resource management over the next three years.
Financing Needs
In addition to the IMF's extended arrangement, the reform program will be
supported by substantial financing from the World Bank, the Asian
Development Bank, and bilateral official contributions, especially Japan.
The Consultative Group for Indonesia, at a meeting in Jakarta during
February 1-2, pledged up to $4.7 billion of support to Indonesia in
addition to IMF financing for FY 2000.
Indonesia joined the IMF on February 21, 1967 and its quota is SDR 2,079.3
million (about US$3 billion). Its outstanding use of IMF financing
currently totals SDR 7.5 billion (about US$10 billion).
Indonesia: Medium-Term Macroeconomic Framework, 1998/99-2002 1/
Estimate
Projections
1998/99
1999/2000
2000
2001
2002
(In percent change)
Output and prices
Real GDP
-14.2
1.8
3 to 4
4 to 5
5 to 6
CPI inflation (average)
64.7
8.5
3 to 4
4 to 5
4 to 5
CPI inflation (end-of-period)
45.4
0.0
5 to 6
4 to 5
4 to 5
(In percent of GDP)
Savings and investment
Gross domestic investment
12.1
13.4
16.3
18.1
19.2
Gross national savings
16.6
16.6
18.1
18.7
19.1
Central government operations
Revenue and grants
15.3
14.5
15.1
15.5
16.0
Expenditure and net lending
17.4
18.3
20.1
19.2
18.6
Of which: interest payments on bank restructuring bonds
0.6
2.2
4.7
4.1
3.6
Overall balance
-2.2
-3.8
-5.0
-3.7
-2.6
Overall balance including arrears
-2.2
-5.0
-5.0
-3.7
-2.6
Domestic financing, of which:
-2.3
3.5
2.4
2.6
2.6
Privatization receipts
0.2
0.8
0.7
0.7
0.8
Recovery of bank assets (cash basis)
0.0
1.5
1.8
1.8
1.7
Foreign financing 2/
4.5
1.5
2.5
1.2
0.1
(End-of-period, in annual percent change)
Money and credit
Credit to the private sector 3/
-2.6
1.9
10.4
...
...
Broad money
33.8
16.0
11.8
...
...
Base money
27.4
9.5
8.3
...
...
(In billions of U.S. dollars)
Balance of payments
Current account balance
4.6
4.8
3.3
1.0
-0.2
(In percent of GDP)
4.4
3.1
1.9
0.5
-0.1
Capital account
-2.0
-4.4
-7.5
-2.1
3.0
Overall balance
2.6
0.4
-4.2
-1.1
2.8
Financing gap
0.0
0.0
4.3
3.4
0.8
(End-of-period, in billions of U.S. dollars)
Debt and reserves
Gross official foreign assets
25.7
27.8
29.2
31.1
33.6
(in months of imports)
6.7
6.5
6.3
6.1
6.0
Liquid reserves
20.3
25.0
26.5
28.4
31.7
(end-of-period, in months of imports)
5.3
5.8
5.7
5.5
5.6
(as percent of short-term debt)
47.1
73.4
89.1
91.5
103.7
Debt service ratio (in percent) 4/
39.1
34.8
29.9
27.3
35.0
Public debt (in percent of GDP)
103.4
96.0
93.4
87.3
79.5
Of which: external
51.0
38.6
38.5
36.8
34.3
Sources: Data provided by the Indonesian authorities; and IMF staff
estimates and projections.
1/ Fiscal years for 1998/99 and 1999/00 (fiscal year starts on April 1)
and calendar years for 2000 to 2002, with the exception of the fiscal
projections for 2000 which are based on the 9-month fiscal year from April
to December.
2/ From 2000 onwards, it includes financing gap.
3/ Adjusted for transfers to IBRA.
4/ In percent of exports of goods and nonfactor services.
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