IMF warning to Jakarta

Business Asia, Sept 13, 1999

Bank Bali a threat to budget

The International Monetary Fund (IMF) has upped the ante against Indonesian President B.J. Habibie's government over the Bank Bali scandal with a veiled threat to suspend further financial aid if the matter is not resolved satisfactorily.

The move prompted an immediate response from Indonesia's Planning Minister Budiono, who admitted the nation's budget planning would be affected if the scandal was not resolved soon.

"I expect it will be resolved soon, because it will affect the budget," Budiono told reporters. "There are already statements from the World Bank and IMF."

The IMF is leading a US$45 billion bailout package for Indonesia's stricken economy.

Budiono said market confidence in Indonesia was the most vital factor in the affair.

"The more important thing is market confidence in us. That would have a strong impact on our economic recovery," he said.

The row over Bank Bali concerns a huge loan recovery fee paid by the bank to a company controlled by a senior member of the ruling Golkar party.

Speaking to the Indonesian publication Business Indonesia in Tokyo, the IMF's Asia-Pacific director Hubert Neiss said the multilateral institution would not hold talks with Jakarta on the next letter of intent -- which spells out the government's economic program -- if the government fails to get to the bottom of the scandal and bring those involved to justice.

"The IMF won't conduct the next review of the Indonesian economy until the government resolves the Bank Bali case," he said.

"We will only come to Jakarta if the case is resolved satisfactorily."

A new letter of intent is scheduled to be signed this month as part of the regular review of Jakarta's adherence to the economic reform program as outlined by the fund.

The last letter of intent was signed in June. The fund's board only disburses the money if it is satisfied that the economic reform program is on track.

Meanwhile, the consultative body of the House of Representatives (DPR) has a plan to summon President Habibie for questioning on the bank case.

However, the body's chairman, Deputy House Speaker Hari Sabarno, said it had been agreed to set up a special committee to investigate the scandal.

Sabarno said it would be improper for the House to summon the President because it had already summoned the finance minister, the central bank governor and the chairman of the Indonesian Bank Restructuring Agency (IBRA).