JP: IMF, RI design new economic program (fwd)

[Robert Weissman <rob@essential.org>]

The following article is interesting and important for a variety of
reasons, including the unlikely admission by the World Bank that it is
doing Indonesia a favor in cancelling nearly one in five of its project
loans (in total undisbursed loans for 43 projects).

Robert Weissman
Essential Information			|   Internet:	rob@essential.org

Jakarta Post
December 15, 1999
IMF, RI design new economic program
JAKARTA (JP): The International Monetary Fund (IMF) and the Indonesian
government are designing a completely new economic program with a new
funding
scheme for the next three years.
IMF Asia Pacific director Hubert Neiss told reporters on Tuesday both the
old
program and the remaining undisbursed loans had been canceled.
"A new amount (of loans) is pledged and that new amount, of course, has to
be
approved by the IMF executive board," Neiss told a press conference
following
a meeting with the leaders of the House of Representatives.
Neiss explained that under the old program, the IMF initially committed a
total of US$10 billion out of the $43 billion in the bailout fund for
Indonesia it had organized.
He said the Fund then raised its commitment by more than $2 billion, but
this
additional amount had not yet been disbursed.
Asked to disclose the amount of the new pledge, Neiss said, "You'll see it
in
the new letter of intent ... It will be higher than what was left in the
old
program."
But Neiss said the amount of the new loan was not important.
"This is because Indonesia is no longer in a balance of payments crisis.
Indonesia's financial situation has stabilized, and its foreign exchange
reserves have been replenished," he said.
"So there's no longer an emergency," he added.
Indonesia agreed in November, 1997, on an IMF-led bailout program amounting
to $43 billion to help restore confidence in the ailing rupiah. The Fund
has
thus far disbursed some $10 billion out of its $12.3 billion commitment.
Neiss came to Jakarta late last week to finalize talks with the Indonesian
government over the country's new letter of intent (LoI) to the Fund.
The LoI comprises Indonesia's basic economic strategies which are to be
financed by the IMF.
Neiss said on Monday some 90 percent of the content of the LoI had been
agreed.
The new LoI is expected to be unveiled in the middle of January when the
government submits the next April 2000-December 2000 state draft budget to
the House of Representatives.
Once the LoI is approved by the IMF executive board, which is also expected
in the middle of January, the Fund will disburse its loans to the country.
Two of the thorniest issues in the new LoI are the planned reduction of
government subsidies on fuel and electricity and the size of import tariffs
to be imposed on rice and sugar.
Director general of oil and gas at the Ministry of Mines and Energy Rachmat
Sudibyo said on Tuesday the government and the IMF had agreed to reduce
fuel
and electricity subsidies, which would result in a 20 percent increase in
fuel prices and 35 percent increase in electricity tariffs.
Rachmat also said the IMF had agreed the new fuel and electricity price
policy would be implemented in April, the start of the country's next state
budget.
Speaking to reporters after meeting with the IMF and World Bank officials,
he
said the IMF had initially demanded the new policy to be implemented in
January.
The IMF and the World Bank have urged the government to gradually reduce
the
subsidies to create a healthy state budget.
Meanwhile, Minister of Trade and Industry Jusuf M. Kalla said the
government
and the IMF had yet to agree on the magnitude of the planned import tariffs
on rice and sugar.
"We'll continue discussing it with the IMF tomorrow (Wednesday)," Kalla
told
reporters.
Minister of Cooperatives Zakarsih M. Noor said the government was proposing
an import tariff of 30 percent for rice in a bid to protect local farmers
from cheaper imported product, but at the same time still provide a profit
margin for traders to import the commodity.
"The IMF wants a tariff of only 10 to 20 percent, so I think we could get a
tariff of around 25 percent," he said.
The IMF has been traditionally against any trade protection measures.
The government has said the next state budget would reflect efforts to
reduce
the country's dependence on foreign loans.
The World Bank said in a statement on Tuesday it had agreed with the
Indonesian government to cancel $556 million in 43 project loans, which
represented 18 percent of its undisbursed loans to the country.
World Bank country director for Indonesia Mark Baird said, "By canceling
components of slow-moving projects, we are working with the government to
maintain the relevance and effectiveness of our programs, while reducing
the
overall financial burden Indonesia faces."
"In this way, we can reorient our programs to support Indonesia's
priorities
as it emerges from the crisis."
The World Bank and the government of Indonesia embarked on a program of
loan
portfolio restructuring over a year ago, canceling nearly $1 billion in
commitments to ongoing projects and redirecting another $1 billion to
crisis-targeted programs such as school scholarships, social and human
development and rural investment. (rei)