Accessibility links

Indonesia Signs Agreement with IMF

Indonesia's new government has signed a fresh agreement with the International Monetary Fund (IMF) to implement economic reforms. The agreement is expected to activate a multi-billion-dollar IMF loan and debt-rescheduling package vital to Indonesia's economic recovery.

Officials in Jakarta say the government signed a letter of intent with the IMF Monday, aimed at releasing $400 million in loans, frozen since December. The IMF suspended the loan, part of a much larger five-billion-dollar lending program, after the previous government of deposed President Abdurrahman Wahid fell behind on a number of promised reforms.

Hopes that Indonesia could break the deadlock with the IMF got a boost last week when new President Megawati Sukarnoputri chose experts, rather than politicians, to lead her economic team. The new senior economics minister is a former Indonesian ambassador to the United States with close ties to the Washington-based lender.

Financial analyst Dilip Shahani, at HSBC Securities in Hong Kong, says the IMF appears to be impressed with the political stability that Ms. Megawati has brought to Indonesia in just one month in office. "I think what the IMF appreciates is that, what Indonesia right now needs is more political stability than very fast move toward more reforms," he said. "I think Megawati coming in and bringing in a good Cabinet is more positive than anything else, and the IMF is somewhat agreeing with that view."

In the latest agreement with the lender, Indonesia renewed its pledge to keep the country's large budget deficit under control. The government also promised to sell off state-owned assets and companies to raise cash for the budget. It has until the end of the year to sell 51 percent of nationalized PT Bank Central Asia to foreign investors. Delay in selling a stake in the bank was a major reason why the IMF suspended lending to Indonesia.

The letter of intent still needs to be approved by the IMF's executive board. But Indonesian officials say they expect the board to release the long-delayed $400 million loan in about two weeks.

An active IMF loan program is also critical to Indonesia's talks with the Paris Club on September 10th. The informal group of creditor governments has said that it would not reschedule Indonesia's nearly six-billion-dollar debt to the group, unless the IMF program was back on track.