IMF to release $460M to Indonesia (fwd)

[Robert Weissman <rob@essential.org>]

Jakarta Post
14 May 1999
Government to sign new letter of intent with IMF
JAKARTA (JP): Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita said on Wednesday the government would sign a new
letter of intent with the International Monetary Fund (IMF) either on
Friday
or Monday.
Ginandjar said the letter would include new economic assumptions reflecting
a
faster than anticipated economic recovery.
Ginandjar said Indonesia would see economic growth of between zero percent
and 2 percent in the 1999/2000 fiscal year, compared to the earlier
forecast
of zero growth in the previous letter of intent.
He also said inflation would be between 8 percent and 10 percent compared
to
the earlier estimate of 17 percent.
The signing of the new letter of intent will pave the way for the
disbursement of another US$460 million of bailout money from the IMF. The
IMF
so far has disbursed some $9.5 billion of its more than $12 billion loan
commitment.
The IMF's board of directors will meet at the end of this month, when they
are expected to approve the latest disbursement. The IMF aid will be
accompanied by the release of $500 million in loan under Japan's Miyazawa
Plan.
Indonesia's economic indicators showed signs of recovery during the first
quarter of this year. The economy expanded by 1.34 percent over the three-
month period. Inflation in April was minus 0.68 percent, better than the
0.18
percent deflation in March. Interest rates declined from 36.50 percent to
29.99 percent as of Wednesday. The rupiah also has stabilized at Rp 8,000
against the U.S. dollar despite the lower interest rates.
The positive developments have prompted both the government and IMF Asia
Pacific director Hubert Neiss, who is currently in Jakarta to review the
country's economic reform programs, to express renewed optimism at a
quicker
than expected economic recovery.
Indonesia has been hard hit by the economic crisis which began in July
1997.
The country suffered an economic contraction of more than 13 percent in
1998
coupled with hyperinflation and skyrocketing interest rates. Millions of
people have lost their jobs and around half of the country's 200 million
people have fallen below the poverty line.
Analysts, however, have warned that the first quarter developments do not
necessarily indicate an economic turnaround.
They said that a successful June general election, the country's first
multiparty elections after more than 30 years under the authoritarian rule
of
former president Soeharto, would be essential to ensure economic recovery.
While Neiss has openly applauded the government's economic reforms, a
government source said Neiss was upset by the delay in restructuring the
debts of the 20 largest debtors at state banks.
Under the previous letter of intent, the government promised to conclude a
restructuring agreement with the debtors by April 30 or begin litigation.
However, the government extended the deadline to Aug. 30.
The delay raised speculation that the debtors, all well-connected
businessmen, were being protected by the government.
The Indonesian Debt Restructuring Agency (IBRA) recently assumed over Rp
100
trillion in nonperforming loans from the seven state banks. It is estimated
half of the bad loans are owed by the 20 largest debtors.
IBRA deputy chairman Eko S. Budianto said last week the government ordered
the agency to return the management of nonperforming loans of less than Rp
25
million back to state banks.
This has raised speculation that the government is dragging its feet on its
key economic reform programs.
Analysts said a delay in restructuring the debts of the 20 largest debtors
would damage confidence in the economy and would threaten the success of
the
costly bank recapitalization program. (rei/prb)