Jakarta – Indonesia's economic woes should be blamed on the government's failure to implement reforms, not on deficiencies in the International Monetary Fund's programme for the country, the agency's chief, Mr Michel Camdessus, told Time magazine in an interview.

His comments came as President Suharto's new Cabinet held its first meeting, and investors watched to see if Indonesia would soften its stance towards the IMF or take an increasingly nationalistic position.

The IMF has postponed a decision on the release of a second tranche of US$3 billion (S$4.9 billion) from its more than US$40 billion bail-out package for the country, and the government has been seen as slow to implement reforms agreed to.

Indonesia has said that it would not bow to outside interference in national affairs, and advisers of President Suharto have said they were frustrated with the failure of the IMF to stem the rupiah's slide.

Mr Suharto has also been considering pegging the rupiah to the US dollar – a move vigorously opposed by the IMF as premature.

"The programme has not delivered all its potential because it has been either not implemented fully or was circumvented," Mr Camdessus said in the interview, to be published in the next issue of Time.

He also reiterated a warning that the agency would stop the bail-out package for Indonesia if Jakarta failed to implement the economic reforms tied to it.

"We have never hesitated to interrupt our financing when a country doesn't fulfill its commitment," he said when asked what would happen if Mr Suharto did not implement the reforms.

Asked whether not disbursing funds would worsen the crisis in Indonesia, he replied: "I would be taking more risks for the world if I were to ignore an agreement signed with a country."

A default by Indonesia "would be extremely serious, not only for the world but for the country itself... to renounce this now would be to renounce an undertaking seen by the entire world as the best course for the country", he added.

Mr Camdessus said the most important lesson from the Asian financial crisis was that the turmoil "is a formidable impetus for us to continue our efforts to achieve good governance, to make institutional changes, to fight against corruption". In a separate development, Thomson Bankwatch said in a report that it was cutting Indonesia's sovereign rating to "B-" from "B+".

"We remain concerned over the diminishing prospects for future reform efforts, particularly in light of Mr Suharto's recent Cabinet selections," Ms Betty Starkey, director of sovereign risk for the firm said.

She said the "government's continued evasion of economic reforms" had led to a "critical delay in the disbursement of multilateral assistance", thereby worsening Indonesia's solvency and liquidity problems.