Raj Rajendran, Singapore – Indonesia will seal its next letter of intent with the International Monetary Fund (IMF) in time to meet its budgetary obligations, Indonesia's chief economics minister Kwik Kian Gie said on Monday.

In a broad ranging speech to Chinese businessmen in Singapore, Kwik promised easier access for foreign investment in Indonesia and said the pace of the country's financial sector restructuring would pick up.

"The IMF letter of intent will be signed in January after the government has presented the state budget in the first week of January. Ninety percent of the letter of intent is already finished."

Kwik said an IMF technical team would arrive in Jakarta on December 7 to begin work on the letter of intent which should be approved by the IMF Board and the Indonesian government well before the budget was presented in early January.

"We can regard that as final although it is not signed ... the money which is needed in order to support our budget will be disbursed again," he said. He confirmed that the government agreed with the IMF forecast of 2.0% growth for fiscal year 2000.

Agreement on tariffs expected

But differences remained over the imposition of import tariffs and the removal of subsidies on basic neccessities. Kwik said the government opposed an IMF plan to have zero import tariffs on rice and sugar imports.

"We're opposed to that idea because rice in the international market is very, very low, so that if the import duty is zero then the farmers in Indonesia will be wiped out in a year," he said.

Kwik said this was dangerous as it would make Indonesia dependent on imported rice which would be a heavy burden on the state when prices increased in the future. "The IMF is receptive to this idea, so a final agreement would be reached in a few days,"he said.

The official Antara news agency reported in late November that the IMF had agreed to let Jakarta impose an initial rice import tariff of 25%. Kwik said 35% was also discussed but he did not have the final figure.

In the case of sugar, Kwik admitted that mills in Java were not competitive but those outside the province were profitable, and a rational plan would be to move the mills out which would take time. "Reduction of sugar import tariffs would be done gradually," he said. The sugar industry had recommended a 65% import tariff.

Bank recapitalisation

Kwik said the government had formed a four-member Financial Sector Action Committee, which would have the power to dispose of assets as it saw fit, to speed up the works of the Indonesian Bank Retructuring Agency (IBRA).

"The power of IBRA management to make a decision to sell an asset was limited by the action of the police and the attorney general's office," he said.

Kwik said the twinning of state banks with international banks was progressing well, with Deutsche Bank already in a preliminary agreement while ABN Amro was keen to enter into one.

Indonesia's interest payment on bank recapitalisation bonds for the next fiscal year would hit four percent of gross domestic product (GDP) and 10% of its budget, Kwik said.

He said the amount would decline from 2000 with acceleration of privatisation of state-owned enterprises and recoveries on assets by the bank restructuring agency.

[On December 7 Reuters quoted Gie as saying he expects the rupiah to stabilize to the level of around 7,000 rupiah to the US dollar in the "medium to long term" adding that "The Indonesian economy is bottoming out ... It will be better bit by bit - James Balowski.]