Robert Go, Jakarta – Market players do not expect miracles, but they see the quick signing of Jakarta's next agreement with the International Monetary Fund as a major test of President Megawati Sukarnoputri's new economic Cabinet.

Much depends on how soon Coordinating Economics Minister Dorodjatun Kuntjoro-Jakti and his team could convince the IMF to sign the release of the next US$400-million loan instalment, part of a US$5-billion programme, to Jakarta.

Mr David Chang of Vickers Ballas said: "If the IMF is willing to disburse the money, investors will start looking at Indonesia again, and the rupiah can continue to strengthen. The IMF's money itself is small, but its backing and endorsement for this government is a crucial signal to private investors and other international creditors."

Mr Umar Juoro, an adviser to former President BJ Habibie, agreed: "If we move ahead with the IMF programme, investors will see real signs of reforms and stability."

Mr Dorodjatun yesterday told reporters that he expected an IMF team to visit Jakarta in mid-September to discuss Indonesia's economic programme.

Analysts said Indonesia's economic problems since the South-east Asian crisis' onset in 1997 was due to a lack of credibility. Time after time, previous governments have reneged on pledged reforms, putting out feel-good statements, but producing little concrete progress on asset sales, restructuring or other programmes that could spur recovery.

Chief among Indonesia's severe economic problems is weak investor confidence and the sluggish inflow of foreign capital into the country. Foreign direct investment totalling US$33.8 billion poured into the country in 1997, but that figure dropped to US$15.4 billion in 2000. Available statistics suggest that Indonesia will attract even fewer investments this year.

To many observers here, the logic is simple and has underlined recovery efforts since Mr Habibie's brief turn at the palace: The IMF is the kick that can start Indonesia's recovery ball rolling again.

IMF backing and money provide stability to the rupiah and the country's financial markets. At the same time, it allows Jakarta to negotiate further loans from other creditors and to appear more attractive to potential investors. Better performance of those two indicators would facilitate easier debt-repayment and restructuring for the government and the hugely indebted private companies.

Analysts think this current economic team will do better than its predecessor, citing Mr Dorodjatun's reputation as an effective communicator, and his network of friends in Washington and within the IMF itself.

Early signs showed both sides wooing each other, with Mr Dorodjatun, Indonesia's former envoy to the United States, saying that the IMF programme should not be viewed "as a burden" by Jakarta. The Washington-based lender, for its part, had promised approval of the next loan instalment before the end of this month.

Mr Chang said: "The market is still cautiously optimistic that this team can manage better ties with the IMF. "We won't see results for another few months, but a quick IMF deal would be reassuring to investors."