The IMF-Indonesia Letter of Intent has been signed: IMF to Disburse US$ 400 Million within Two Weeks



27 Aug 2001

Indonesia’s economic team and the IMF have signed the Letter of Intent (LoI) at the Ministry of Finance in Jakarta today (27/08). The signing was conducted by IMF Deputy Director for the Asia-Pacific region Anoop Singh, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti, Minister of Finance Budiono and Bank of Indonesia (BI) Governor Syahril Sabirin.

In a press conference held after the LoI signing, Dorodjatun said announced that the IMF has agreed to disburse US$ 400-million in funds. The funds are scheduled to be disbursed within these two weeks.

Dorodjatun added that in the LoI, both parties had prioritized the economic and financial policies geared to maintain trust in the market.

The finalized economic policy contains 34 main points. Among these are: (1) the macro-economic policies for 2001 referred to in the State Budget outline, that lists targets of 3-3.5 percent for the rate of economic growth and 9-11 percent for the rate of inflation; (2) the monetary sector is to be coordinated in accordance with inflation targets and the real interest rate is to be maintained; (3)the Indonesian government is committed to the development of a strong central bank with good accountability and(4) that the government adhere to the agreed Budget adjustments [an agreement reached with the House of Representatives (DPR)], including a 30-percent increase in oil prices for non-industrial users and additional electricity costs for big consumers in two stages.

Apart from that, the IMF hope to see a decrease in the impact of non-neutral interference with fiscal decentralization, a careful prioritization of the development budget and to make efforts towards the budget incomes.

The 30 other points mostly review the implementation of 2001 State Budget and the 2002 Budget draft. The agreement includes the restructuring of the Indonesian Bank Restructuring Agency (IBRA) that must reach its target of Rp 27 trillion in cash and Rp 10 trillion in bond-funds by the end of this December.

The LoI has also stipulated the need for efforts to improve banking performance. In this regard, the Bank of Indonesia must monitor all banks and emphasize the practice of caution and transparency. The government will strengthen its monitoring activities over the financial institutions.

The LoI also targets Rp 110.5 trillion for Indonesia’s base money until the end of this September, with a rate of growth pitched at 12.5 for this year. Minister of Finance Budiono has yet to decide the value of the rupiah’s fixed rate against the US$. However, he expects the rupiah can reach Rp 8,000 to 9,000 per US$ when the economic team deliver the 2002 State Budget draft to the DPR.

Dorodjatun expressed his gratitude for the good co-operation that has been established by the IMF and cabinet economic team. "We will simply continue with the implementation of the LoI so that Indonesia’s economic recovery program can be achieved smoothly," he said. Anoop Singh stated, however, that the implementation of the LoI is the most difficult part. He expects that the next IMF review will show some improvement. State Minister on State Enterprises Laksamana Sukardi and Minister of Industry and Trade Rini Suwandi were also present at the LoI signing.