Indonesia said Thursday it had agreed
with the International Monetary Fund on a comprehensive package
of 117 reform measures to revive its battered economy, with
precise dates to implement all key points.
In its third agreement with the IMF in six months, Indonesia
vowed to tackle $74 billion in private debt and said it hoped to
stabilize its volatile rupiah currency.
In a document on the accord, the Indonesian government said
46 of the listed reforms had already been implemented.
Indonesia, suffering its worst economic crisis in decades,
was forced last year to accept an IMF-led bail-out package worth
more than $40 billion after a massive slump in the value of the
But Jakarta has been slow to implement IMF-prescribed
reforms and the IMF held back $3 billion of the package last
month, pending a review of the program's progress.
The government said in the memorandum it expects the rupiah
to stabilize at better than 6,000 to the dollar, over time. It
said it was tightening monetary policy to bring the exchange
rate to a more appropriate level and reduce inflation.
"We expect that the exchange rate will eventually
stabilize below 6,000 rupiah per U.S. dollar," it said. "On
that basis, inflation would decelerate quickly, but would
probably still amount to over 45 percent during 1998 as a
whole," it said.
The rupiah strengthened marginally to about 8,000 to the
dollar Thursday news the package had been agreed on, but was
still down some 70 percent from its July level of 2,400.
The plunge has thrown the economy into its worst crisis in
three decades, triggered soaring inflation and doubled
unemployment to about 10 percent of the workforce of 90 million
The new measures include commitments from the Indonesian
government to set up a bankruptcy law, an anti-monopoly law and
a special court to cover bankruptcy proceedings.
The memorandum also announced the end of a ban on the export
of crude palm oil and what taxes it would be replaced by, a
concrete program for privatization of state enterprises and
details of accelerated bank restructuring.
To prevent any possibility of backsliding on commitments,
target dates have been agreed for implementation of all the new
Hubert Neiss, director of the Asia-Pacific department of the
IMF, said he was confident Indonesia would carry through the
But he added in an interview with Reuters: "I cannot be
absolutely sure, nobody can be absolutely sure ..."
Therefore, he said, "We have to build as many safeguards as
possible into the program to ensure a maximum degree of
certainty that this program will not remain just on paper, but
it will become step-by-step reality."
Neiss, who has headed the IMF review team in three weeks of
negotiations, was due to return to Washington Friday.
Indonesia and the IMF initially agreed on the reforms in
October, but the package was revised in January as the economy
continued to worsen and the government appeared to be
backsliding on its commitments.
The IMF is conducting quarterly reviews of the Indonesian
program, and the latest revision followed discussions with a new
economic team appointed following President Suharto's
re-election for a seventh five-year term by a rubber-stamp
assembly March 11.
One of the key problem areas has been the level of private
debt, which has left most companies in the country technically
The memorandum of understanding offers the outline of a
framework being negotiated by creditors, debtors and the
government to resolve the debt.
Neiss said the government would participate in the
framework, perhaps by providing an exchange rate guarantee.
"The important issue is ... the way this guarantee is
phrased, what exchange rate is chosen, what interest rate is
chosen (both for the rupiah and foreign currencies), what grace
period, what total maturity is chosen into which the short-term
debt is rolled over."
Neiss said these all had implications for the government and
one of the principles was that the potential loss to the
government be limited.
"We want to minimize the losses of the government, but we
still want to make the system sufficiently attractive so that
creditors and debtors actually use it," he said.
Indonesia will also gradually raise fuel and electricity
prices in the 1998/99 (April-March) fiscal year.
Subsidies on rice and other essential foods will be in place
for some time, the memorandum said. Prices of other food items
will rise in April and the subsidies on most of them will be
phased out by October.
The subsidy on rice, Indonesia's major staple, will remain
in place but will be diluted with a price rise in October, it
The government has been careful to ensure that prices of
essential goods are not raised drastically because of the
potential for unrest in the nation of 200 million people.
Riots broke out in some two dozen towns across the country
in February after rises in the prices of essentials.
In Rome, two U.N. food agencies said Indonesia would face a
record food deficit this year as a result of lower harvests and
the financial crisis, that has raised the cost of imports.
In a joint report, the Food and Agriculture Organization and
the World Food Program said large-scale international assistance
would be needed to meet a shortfall in rice.