Kate Linebaugh, Jakarta – The International Monetary Fund on Monday signed a new letter of intent with the Indonesian government, clearing the way for further release of assistance funds for the country. IMF Asian-Pacific Director Hubert Neiss said after the signing that the new letter of intent focused on the country's bank-restructuring and public-expenditure programs.

The IMF reviews its assistance program for Indonesia every month due to the volatility of the country's economic situation. "This letter of intent puts emphasis on bank restructuring and on the expansion of public expenditure for employment-creating projects and for social projects," Mr. Neiss told reporters after meeting President B.J. Habibie.

Mr. Neiss said he was satisfied with the pace of banking reform but that "what is important is that decisive steps are taken now." "The main hurdle in banking restructuring is yet to come," he said. That is "the recapitalization of banks, the repayment of liquidity credit, and the taking over by Ibra [the Indonesian Bank Restructuring Agency] of the nonperforming assets."

Last week, Indonesia kicked off its bank-restructuring program by converting liquidity support into equity in Bank Danamon giving the government a 95% stake. The government said it will transfer the nonperforming assets to the asset-management unit of Ibra, enabling the bank to attain an 8% capital-adequacy ratio once the restructuring is completed. The Indonesian parliament last week also passed a new banking law that allows for full foreign ownership of banks.

Mr. Neiss also stressed that the social programs included in the budget must be implemented "to protect the impact of the recession on poorer people and to limit unemployment". "These programs have to be prepared carefully but speedily because they are needed now," he said.

Reiterating comments made earlier Monday, Mr. Neiss said the rupiah has fallen too far in value. "If the [IMF] program goes all right, the trend should be upward right into next year."

While in this letter there are no alterations to the macroeconomic framework of the program this month, next month Mr. Neiss said the IMF and the Indonesian government "may look both at prices and balance of payments again." The completion of the monthly review paves the way for the approval of another $1 billion in assistance to Indonesia at the end of the month, Mr. Neiss said.