The Indonesian Government has signed a new Letter of Intent (LoI) with the International Monetary Fund (IMF), together with a memorandum on eonomic and financial policies (MEFP) to IMF managing director Horst Kohler.

The documents were signed by the Coordinating Minister for Economic Affairs, Dorodjatun Kuntjoro-Jakti, Finance Minister Boediono and Governor of Bank Indonesia Syahril Sabirin.

A statement from the Coordinating Minister's office says the LoI explains progress in implementing the government's economic program, "with increasing signs that its efforts are laying the basis for a durable recovery".

The LoI will be presented to the IMF Executive Board for its consideration later this month. A successful completion of the review will enable the next IMF tranche to Indonesia of about $450 million.

The LoI states that the rupiah has strengthened, interest rates have fallen along with inflation, and the balance of payments position has improved with a further build-up in international reserves.

"Notwithstanding the tragic events in Bali last October, economic growth has been sustained," the statement said. "These positive developments were facilitated by a cautious monetary policy and continued fiscal consolidation, as well as further advances in structural reforms.

"The Government's program for 2003 aims to strengthen growth and employment prospects by enhancing competitiveness and fostering a more attractive investment climate."

The statement says action is being pursued on the following topics:

1. Consolidation of recent gains on the macroeconomic front through the continued implementation of prudent fiscal and monetary policies to achieve the framework targets GDP growth of 4 percent, and aims to reduce inflation to 9 percent by year-end through:

a. Monetary policy that will be geared toward maintaining a downward trend in inflation and preserving broad exchange rate stability;

b. Reducing public debt to more manageable levels, while maintaining spending on infrastructure and boosting the provision of key social services, with resulted a budget deficit of 1.8 percent of GDP, as approved by Parliament in November

c. Mobilizing non-oil tax revenues centers on a continuation of tax administration reforms initiated in 2002. In this connection, the initial operations of the Large Tax Payer Offices (LTOs), now under way since last September, will be expanded to more taxpayers in Jakarta while evaluating an expansion to other regions at a future date;

d. Implementing public debt management strategy aims to lower the budget's debt service costs, and to minimize refinancing risk by improving the maturity profile of debt. The Government Debt Securities Law has been enacted, and an interdealer market has been established to provide transparent price discovery for market players. The Government is strengthening the regulatory framework and developing the market infrastructure needed to enhance the liquidity of the secondary market for government securities.

e. Improving fiscal transparency and public sector governance remain priorities in 2003. The Government will continue its efforts at budget consolidation. All remaining funds not previously consolidated will be brought under the control of the central government. The main findings of the audit of the Reforestation Fund completed last year have been submitted to Parliament, and corrective action plans adopted. In addition, the main findings of the audits of the two investment funds (RDI and RDA) completed last year have been submitted to Parliament. Necessary corrective action plans will be developed by the government in consultation with Parliament.

f. Improving performance of the public sector is also being strengthened through the ongoing program of performance audits of state enterprises which corrective actions identified under the second round-audits are being carried out for Garuda, Pelindo II, Jasa Marga, Telkom, PT PN-IV, and a progress report on their implementation has just been published;

g. The government will also take steps to strengthen the framework for auditing military and other foundations receiving state funds or financing state activities. The government is preparing amendments to the Foundations Law, to be presented to Parliament in its next session, to clarify the legal basis for the BPK to undertake such audits.

2. Enhancement of financial system stability by further strengthening the banking system, state bank governance, and the regulatory framework

a. With regard to IBRA bank divestment, the sale of Bank Danamon has been launched, and is expected to be completed by April, followed by the plan to launch the sale of Bank Lippo;

b. With regard to the efforts to strengthen state bank governance center on steps to improve oversight and accountability, the Government is committed to strengthen the capacity of the Ministry of State-Owned Enterprises to monitor state bank performance, and additional staffing resources are being provided to the Ministry for this purpose.

c. With respect to the restructuring and divestment of state banks, the initial public offering (IPO) of Bank Mandiri is expected to be listed in the second quarter.

d. With regard to develop sound financial sector safety net, the Ministry of Finance, with inputs from Bank Indonesia, is developing a comprehensive plan to be completed by end March 2003. 3. improvement of the investment climate through legal and other structural reforms

a. Decentralization: While significant progress has been made, further work is needed to strengthen the fiscal, legal, and administrative framework for decentralization. A priority will be to strengthen the procedures governing the issuance of regional regulations that have the potential to conflict with the national interest. To this end, the Government intends to continue its efforts to enforce existing reporting requirements and ensure compliance with government directives canceling problematic regulations.

b. Labor: Following the major reform of the rights of association and union activity in 2000, modernization of complementary labor legislation relating to industrial relations has become a priority. A bill relating to labor protection has now been passed, and the Government is working closely with Parliament to ensure that the other bill in this area, on industrial dispute resolution, is enacted during the first half of 2003.

c. Commercial Court: The emphasis in 2003 will be on the further development of the Commercial Court, which has jurisdiction over bankruptcy and intellectual property rights cases.

d. Anti-Corruption Commission (ACC): The commission is expected to fully operational by no later than December 2003, as required by the Anti-Corruption law. In this regard, the government intends to submit names of candidates for the five positions of members of the ACC to Parliament by July 2003.