IMF Indon: Many Points Added To Draft Letter of Intent (fwd)

[Robert Weissman <rob@essential.org>]

IMF: Many changes incorporated into Indonesia draft letter of intent
    JAKARTA (AFX-ASIA/Dec 20) - A draft of the government's letter of
intent
to the
International Monetary Fund dating from November should not be taken as
necessarily reflecting the government's commitments under the programme,
IMF
Jakarta Office senior resident representative John Dodsworth said.
    The November draft, which was obtained earlier by AFX-ASIA, "represents
an early stage in the negotiating process", Dodsworth said.
   "With intensive discussions over the past week, many changes have been
subsequently incorporated," he said.
    "Thus, the statements should not be seen to necessarily reflect the
commitments of the Indonesian government."
-----
    The letter said the government remains committed to fiscal
decentralistion by June 2001.
   According to the regional governance and fiscal balance laws, the
government must transfer 15 pct of onshore non-tax revenue from oil, 30 pct
of onshore non-tax revenue from gas, and 80 pct of revenue from forestry to
regional authorities.
    The government must also establish a general allocation to regional
authorities, at least 25 pct of total domestic revenue.
    With these reforms, the share of regional spending should double to
about
40 pct by 2002, when it will equal about seven pct of GDP.
------
    The government expects the debt service ratio to be 34.8 pct in the
year
to March 2000, compared to 39.1 pct a year earlier.
    It sees the ratio falling to 30.8 pct in the April-December 2000 budget
year, 29.8 pct in full-year 2000, 27.1 pct in 2001 and rising again to 34.8
pct in 2002.
    The goverment expects an external account surplus in the year to March
2000 of 5 bln usd, or about 3.2 pct of GDP.
   This would be 2.5 bln usd above previous projections because of a
reduced
fiscal expansion and stronger oil export prices, the letter said.
    "With the onset of recovery and a strengthened currency, we expect the
current account surplus to decline in 2000, consistent with the pattern
experienced in other Asian countries," the letter said.
    It said the current account surplus should fall to about 1.5 bln usd in
the April-December 2000 budget year.
    "Export volume growth should strengthen, although this is expected to
be
outweighed by a recovery of imports, which should still remain well below
the
pre-crisis level," the letter said.
    It said there should be an external financing gap in the April-December
2000 budget year of about 4.3 bln usd which will be linked to an expected
budget deficit of about 5 bln usd.
    The budget deficit is seen falling to 3.7 bln usd in 2001 and 2.6 bln
in
2002.
   "We have requested another principal rescheduling from the Group of
Official Creditor Countries of Indonesia for the 24-month period through
March 2002; estimated relief during financial year 2000 is 2.1 bln usd,"
the
letter said.
---------
Indonesia IMF: requires audit of off-budget funds including military funds
    JAKARTA (AFX-ASIA/Dec 20) - The government is planning to audit
off-budget
revenue earned by the state and its agencies, including those relating to
the
military, according to a draft of the government's new letter of intent to
the International Monetary Fund.
    "Audits will be undertaken for all identified off-budget funds with
significant financial exposure, including all military-related funds," the
letter said.
   The letter said audits of off-budget activities will comprise one of two
reviews planned by the Finance Ministry.
    The other review will be aimed at "consolidating information on all
bank
accounts of government agencies."
    "Both reviews aim at bringing off-budget activities and funds within
the
fiscal framework," the letter said.
   Audits will be undertaken by the Supreme Audit Board. The draft contains
a tentative date for their completion of June 30 next year.
    It said thereafter, there will be annual audits of any activities that
remain outside the budgetary framework.
    "We recognise that quasi-fiscal activities may also arise from the
operations of private foundations that use government assets, and we are
preparing legislation to bring the activities and accounts of such
foundations under government review and audit," the letter said.
----------------
Indonesia IMF draft: govt to allow PwC to follow up Bank Bali audit
    JAKARTA (AFX-ASIA/Dec 20)  - The government is planning to allow
international auditor PriceWaterhouseCoopers to follow up an investigative
audit of a scandal involving PT Bank Bali, according to a draft of the
government's new
letter of intent to the International Monetary Fund.
    "PwC has been engaged to complete the investigation in all areas where
it
was unable to do so in its original report," the letter said.
    Additional actions "will be taken by Jan 31, 2000 to correct or pursue
any deficiencies or malfeasance that are identified in this follow-up
investigation", the draft letter said.
    The draft letter of intent is still being discussed by the government
and
IMF negotiators.
   While some changes may occur, many of the conditions are not expected to
change markedly, a source familiar with the talks said.
   PricewaterhouseCoopers alleged in the original audit that Bank Indonesia
appeared at times uncooperative with its investigation into the scandal.
    In addition, PwC was prevented from following through a funds flow
analysis of the proceeds of the scandal to some destination accounts
because
of banking secrecy laws.
---------------

Indonesia IMF draft letter sees reform plan on cigarette excise tax
    JAKARTA (AFX-ASIA/Dec 20) - The government is planning to streamline
the
cigarette excise tax system and undertake other fiscal reforms, according
to
a draft letter of intent to the International Monetary Fund.
    The draft is still being discussed by the government and IMF
negotiators.
    While some changes will occur, many of the components are not expected
to
change markedly, sources familiar with the talks said.
    On excise tax reform, the government will "further rationalise and
simplify the structure of the excise tax on cigarettes to reduce remaining
distortions and discrimination among producers, taking account its revenue
implications."
    It said this will involve unifying minimum prices among producers and
flattening the rate structure.
    The measures have a tentative target date of April 1, 2000.
    The letter said policies governing tax holidays and free trade zones
are
also being rationalised to keep the tax system from being used to promote
or
discourage specific sectors, industries, or regions, "thus reducing abuse
and
evasion".
    It said improvements to the efficiency of the value-added tax system
are
being introduced by phasing out unnecessary exemptions that reduced revenue
from the tax.
    The letter said steps are being taken to improve tax and customs
administration, improve the targeting of large taxpayers and combat fraud,
it
said.
    An audit of the tax office is expected to be completed by February
2000,
it said.
    Two new amendments to tax laws (the VAT and the Tax Procedure Law) are
being prepared for submission to parliament by February 2000.
    The letter also said the government will move towards replacing all
export taxes and levies via resource rent taxes. The maximum export tax on
logs, sawn timber, and minerals will be reduced to 15 pct by end-December
1999.
    It said the next phased reduction -- to 10 pct by end-December 2000 -
will be implemented after reviewing the forestry sector taxation during the
first half of 2000.
    Finally, the government will eliminate by end-2000 all other export
restrictions, for example licensing requirements or government approval on
logs, coffee, and wood products, with the exception of those needed to
administer Indonesia's commitments under the multi-fibre agreement.
---------------

Indonesia IMF draft: requires IBRA to report to president on policy issues
    JAKARTA (AFX-ASIA/Dec 20) - The government is planning to issue
guidelines that require the Indonesia Bank Restructuring Agency (IBRA) to
report directly to
the president on all policy issues, according to a draft letter of intent
to
the International Monetary Fund.
    The president is expected to issue instructions establishing that "IBRA
will report to his office on all policy issues", the letter said.
    The draft letteris still being discussed by the government and IMF
negotiators.
    While some changes will occur, many of the components are not expected
change markedly, a source familiar with the talks said.
    "A comprehensive study, in collaboration with the World Bank, has been
launched to develop a strengthened governance and oversight framework for
IBRA, and an interim report is expected by Jan 31, 2000," the letter said.
    It said on the basis of this report, "recommendations will be developed
and final decisions taken no later than March 2000".
    The letter said steps that will strengthen IBRA's role include ensuring
"IBRA's status as the sole publicly-funded entity in charge of asset
recovery".
    The draft gave a tentative date for the first comprehensive audit of
IBRA's operations, covering its September 1999 accounts, to be publicised
by
Jan 31, next year.
    This was to be followed by reqular quarterly and annual audited
financial
statements, the letter added.
---------------
Indonesia yr to March 2000 foreign debt seen at 71.9 bln usd, 45 pct of GDP
    JAKARTA (AFX-ASIA/Dec 20) - Government foreign debt in the year ending
next
March is estimated to reach 71.9 bln usd, the Jakarta Post reported.
   "The government's overseas devt in the 1999/2000 fiscal year is
estimated
to reach 71.9 bln usd or about 45 pct of gross domestic product," National
Development Planning Board chairman Junaedy Hadisumarto was quoted by the
weekend report as saying.
   In the year earlier, government foreign debt stood at 68.4 bln usd or
58.
6 pct of GDP.
   Junaedy said the current year debt estimate includes a 10.3 bln usd loan
from the International Monetary Fund.
    Junaedy also said the government's domestic public debt in the current
fiscal year stood at another 74.7 bln usd compared to 21.9 bln usd in the
previous fiscal year.
    He attributed the large difference to the huge cost of the government's
bank recapitalisation program.