G.K. Goh, Jakarta – Indonesia is targeting economic growth of 3.0-3.5 percent this year and inflation of below 10 percent by year-end, according to the draft agreement between the government and the International Monetary Fund.

"We aim to achieve the macroeconomic framework for 2001 agreed with parliament in the context of the revised budget outlook," said a draft copy of the letter of intent obtained Monday by AFP-owned financial newswire AFX-Asia.

The draft was drawn up during a visit to Indonesia by an IMF team, which ended Friday. Approval of the new letter of intent by the IMF board is vital for the release of a 400 million dollar loan tranche under an IMF program, which has been stalled since late last year.

Indonesia's top economics minister, Burhanuddin Abdullah said last week the government expected the IMF to disburse the 400 million dollar tranche before September.

The draft said parliament's approval in June of the government's revised budget assumptions will reduce the deficit blowout by some 2.2 percentage points this year, increasing the likelihood that the government will maintain the forecast budget deficit at 3.7 percent of GDP.

The revised 2001 budget includes new cost-cutting and revenue-raising targets. Measures include cuts in development spending, fuel price rises of over 30 percent for non-industrial users and electricity price rises for large consumers of 17.5 percent on average. A second electricity price increase is expected to be completed in October.

The draft said the 2002 budget proposal, to be submitted to parliament soon, will include new measures to boost tax revenues, reduce untargeted subsidies and further balance fiscal decentralisation.

The government will maintain its policy of freezing the total number of civil service jobs and zero real wage growth in 2002, pending civil service reform including performance-based policies, it said.

Monetary policy was being tightened in line with the inflation target and to produce "real interest rates at adequate positive levels." The government would again meet with the IMF and the World Bank by mid-September to review the implementation of the 2001 budget. It had already formulated contingency measures should the review expose a shortfall in financing or an overrun of the deficit target.

The government also said that the activities of the Indonesian Bank Restructuring Agency (IBRA) remained a key to the government's efforts to recover from the economic crisis which broke out in mid-1997.

"The activities of IBRA remain central to Indonesia's full recovery from crisis – crucial to fiscal sustainability, corporate restructuring, and rebuilding investor confidence," the draft letter of intent said.

The draft letter of intent consists of 36 points covering the country's macroeconomic framework and policies as well as fiscal decentralisation, banking system reforms, IBRA asset recovery and restructuring and other reforms.