Shoeb Kagda – Concern over the International Monetary Fund (IMF) delaying its next loan payment of US$400 million to Indonesia sent the rupiah skidding yesterday to its lowest level in over two months.

The Indonesian currency fell to as low as 7,630 against the US dollar in morning trade before recovering later to close at the 7,600-level.

The multilateral lending agency, which in January signed a fresh US$5 billion loan package with the newly-elected government of President Abdurrahman Wahid, is unhappy with the pace of reforms, particularly in the area of corporate and bank restructuring. It remains unclear as to when the programme will get back on track as a rescue team from the IMF is scheduled to visit Jakarta early next month to assess the situation.

Djunaedi Hadisumarto, head of the economic planning body Bappenas, told reporters that a date would be agreed for the IMF team to come to Indonesia to review its progress. After the review, the IMF board can meet to discuss the loan.

The fund's executive board was originally due to meet on April 4 to approve paying the next tranche of the three-year loan package for Indonesia, but said this week talks were still underway on setting a meeting date.

Asked whether the original schedule could still be met, Chief Economics Minister Kwik Kian Gie said yesterday: "I think not. But we are making efforts so that it could be implemented as quickly as possible."

He added that Indonesia would not be able to meet all the targets on time as set out in its latest letter of intent to the IMF. "Most of the programme's deadline is March 31. There are only a few days, so we can predict it cannot be implemented."

Sources told BT that the government viewed the problem as a serious matter and was working hard to resolve it. Trade Minister Yusuf Kalla, who is on an official trip to South Africa, has been recalled to discuss the letter of intent and hammer out a new timetable.

Market analysts said they were not surprised by the IMF's decision. "I don't get any sense that the government is able to knuckle down and carry out the reforms," said the research head of a foreign broking firm. He added, however, that the government could in fact use the IMF as a stick to push through the reforms and move against powerful vested interest groups which have been resistant to change.

This is the second time the IMF has suspended its loan programme due to the government's inability to carry out economic and political reform. The fund halted aid last September over the politically-charged Bank Bali scandal and resumed lending only in January this year.

Last week, IMF senior Jakarta representative John Dodsworth warned that Indonesia would have to speed up the pace of economic reforms, particularly on corporate debt restructuring, to qualify for the next loan tranche.

In Washington, Anoop Singh, deputy director of the IMF's Asia and Pacific department, said Indonesia had sought more time to agree on how to implement the necessary reforms. "The government's economic team requested more time to reach full consensus on the corporate restructuring strategy, and to advance implementation in other areas of the programme."

Indonesia pledged in January to speed up efforts to tackle its US$65 billion private debt burden. A large chunk of the country's corporate sector has stopped servicing its debt and many companies are not cooperating with creditors. The country's bankruptcy law has also proven to be ineffective in resolving the deadlock due to problems with implementation. Hardly any bankruptcy suits have been successful.

In its January deal with the IMF, Indonesia pledged to tackle the debt burden through aggressive action by the Indonesian Bank Restructuring Agency (Ibra), the Attorney-General's Office and the Jakarta Initiative, a body set up to promote debt restructuring.

Ibra is the country's largest creditor, controlling billions of dollars in loans taken over from ailing banks, and analysts hope that with the cooperation of the AG's office, it will have the clout to push through some bankruptcy cases and get the ball rolling on debt restructuring.