IMF likely to pledge 5 billion dlrs for Indonesia

Asian Economic News, Jan 24, 2000

JAKARTA, Jan. 20 Kyodo

The International Monetary Fund (IMF) is expected to approve a 5 billion dollar loan in a new economic package for Indonesia for the next three years during a meeting of its executive board Feb. 4, a senior IMF official said Thursday.

The announcement was made a day after a new letter of intent proposed by the Indonesian government to the IMF was signed.

It was also a few hours after the government unveiled a budget for 2000 that features fiscal decentralization, an effort to calm calls for independence in some of its resource-rich provinces.

"Now we have 5 billion (dollars) for the next three-year program," John Dodsworth, senior resident representative of the IMF's Jakarta Office, told reporters.

With the establishment of the new program, Dodsworth said, the previous economic package agreed by the IMF and the Suharto and Habibie administrations was canceled, but 1.34 billion dollars of that money will be included in the new pledge.

He suggested that when the IMF executive board agrees the new letter of intent, about 400 million dollars of the loan will be disbursed.

The program, Dodsworth said, will be reviewed before mid-March.

Also speaking in Jakarta, U.S. Treasury Secretary Lawrence Summers said the international community is ready to support Indonesian initiatives.

Earlier in the day, Vice President Megawati Sukarnoputri outlined the budget in a speech to the House of Representatives on behalf of President Abdurrahman Wahid, who, because of his partial blindness, often asks Megawati to read presidential speeches.

Finance Minister Bambang Sudibyo told a press briefing Wednesday night the budget tries "to facilitate the implementation of a law concerning fiscal balance between central and local governments, which is concerned with the allocation of finance for the regions."

He also said the budget deficit for 2000 is projected at 45.37 trillion rupiah (about 6.2 billion dollars), about 5% of the gross domestic product.

The budget covers April 1 through Dec. 31 because the government has decided to begin its fiscal years in January, starting from 2001.

More than half the deficit will be financed by foreign loans, and the rest through privatization and sales of assets of bankrupt banks and companies currently under the control of the Indonesian Bank Restructuring Agency, Bambang said.

Starting this year, the government will aim "to reduce the size of the budget deficit and generate economic conditions that will over time move the economy towards a position of budget balance or surplus," he said.

Megawati said the wages of civil servants would be raised since the current remuneration system encourages bureaucrats to abuse power "in an attempt to enrich themselves."

She did not give a figure for the increase, but Bambang told the news conference the government would propose a 10% increase April 1 and another 10% hike Oct. 1.

"Larger increases will be given to higher civil service echelons, including state officers and judiciary," the IMF letter of intent said.

The budget projects total government revenues of 137.7 trillion rupiah, 15.1% of GDP, while expenditures are forecast at 183.01 trillion rupiah, 20.1% of GDP.

The budget assumes growth at an annualized rate of 3.8% in April-December of 2000, compared with zero expected for fiscal 1999, which ends this March.

Inflation is expected to be 4.8% in 2000, compared with 17% in fiscal 1999.

The budget sets the price of crude oil at 18 dollars per barrel, compared with 10.5 dollars per barrel in fiscal 1999, and expects the rupiah to trade at 7,000 to the U.S. dollar, compared with an average of 7,500 expected for the current fiscal year.

Under the new law concerning fiscal balance between the central and local government and another law on regional governance, the central government will receive less money from natural resources produced by resource-rich provinces such as Aceh, Papua (formerly Irian Jaya), Riau and East Kalimantan.

The government is facing rising demands for independence from the provinces, which accuse Jakarta of stealing their natural resources.

In line with the laws, the regional governments will also be free to manage their own budgets without interference from the central government, to motivate them to improve services in sectors such as health and education.

According the IMF letter of intent, the fiscal decentralization will be implemented by June 2001.

But Megawati said the central government will still interfere in social safety net programs to deal with the impact of economic crises.

"This explains why in the next one or two years, this program will be continued," she said.

The budget was also presented for the first time with foreign borrowing and certain domestic sources of funds being shown as the way in which the deficit is financed.

Under the old system, the overall budget was balanced with foreign borrowing being treated as revenue.