Jakarta – The International Monetary Fund (IMF) on Monday drew a "clear commitment" from the Indonesian government to accelerate its economic reform programs. The IMF mission arrived in Jakarta on Sunday to try and strike a new economic reform agreement with the government.

Speaking to reporters after meeting with President Megawati Sukarnoputri and her economic team, IMF deputy director for Asia Pacific Anoop Singh said that he is very optimistic about their discussions. He did not, however, state when the Washington-based body would release the US$400 million loan it has withheld from Indonesia since late last year on the grounds that the latter has wavered on agreed reforms.

A new Letter of Intent (LoI) on economic reforms is expected to be signed soon. "The IMF is very optimistic and expects all talks to be completed this week, but on Thursday we expect a new LoI," Minister for State Enterprises Laksamana Sukardi said after the meeting.

Laksamana said that if the draft of the new LoI is brought to the IMF executive board, it will convene immediately to approve it. The approval will allow the disbursement of the Fund's $400 million loan tranche, which has been withheld since late last year amid signs that the Indonesian administration was wavering on the implementation of the agreed reform agenda. Laksamana said the meeting also reopened the issue on the privatization of state enterprises.

He expressed his belief that the IMF will not object to the government's target to raise Rp6.5 trillion (US$768.8 million) from the privatization of state enterprises. "The issue on the privatization of state companies would be discussed again, whether the target should be reduced or not, but I believe the government's target of Rp6.5 trillion will not impede the IMF's disbursement of its loan," he said.

The IMF is requiring Indonesia to take six so-called prior actions before signing the new LoI. The six are:

1. Target of base money to reach Rp108 trillion;
2. Announcement of the Oversight Committee's review of the Indonesian Bank Restructuring Agency (IBRA);
3. Privatization of state-run companies;
4. Distribution of fuel price hike compensation;
5. Settlement of the Bank International Indonesia (BII) case, and;
6. Reopening account 502 as a banking guarantee fund.

Bank Indonesia intends to wait for IMF signals before making a decision related to the base money target of Rp108 trillion. "We are still waiting for signals from the IMF to decide whether or not to increase the interest rate on Bank Indonesia's short-term promissory notes [SBI] to control base money," the central bank's governor Syahril Sabirin said, adding that the current base money of Rp112 trillion was still too high.

Syahril said that the government can take several ways to reduce base money to its target of Rp108 trillion without increasing the SBI interest rate. The bank's deputy governor Miranda Goeltom said that another way to control base money is to intervene in the money market by selling dollars. But the central bank will waiting for the IMF's approval before taking the decision, Goeltom said.

On the IMF's economic reform targets for Indonesia, economist Sri Adiningsih of the Yogyakarta-based Gadjah Mada University said that a particular concern is the IMF's request to issue extra government bonds for financing the blanket guarantee scheme on banks. "The IMF must consider revising some of its programs, including the one on account number 502, since it requires a lot of funds and is difficult to meet under the current situation," she said.

The bonds, the proceeds of which would be kept under a Bank Indonesia account known as account 502 to finance funding shortfalls for the bank guarantee scheme, should be issued later this month as a prerequisite for an IMF deal. Sri warned that issuing the extra bonds, initially estimated to be worth Rp30 trillion will worsen Indonesia's debt burden.

The Paris Club of official creditors will study an Indonesian proposal for the rescheduling of a $6.2 billion debt due this year, when it meets in September. Syafruddin B Tumenggung, a senior official at the office of the chief economics minister, said that the debt includes $400 million owed to five non-Paris Club members.

The five countries, Saudi Arabia, Taiwan, Brunei, Kuwait and China, have agreed to roll over the debt under the Paris Club scheme. Tumenggung said that the debt to be rescheduled includes Official Development Assistance (ODA), which is to be rolled over for 20 years, with a grace period of 7 years, and a non-ODA loan to be rescheduled for 15 years, with a grace period of 3 years.

Indonesia has a foreign debt of around $140 billion. The central bank said that $33.5 billion of Indonesia's foreign debts will be due for repayment this year including $7.5 billion owed by the government. Tumenggung said that approval for the rollover by the Paris Club will depend on the success of the current talks between the government and the IMF. He said in principle all members of the Paris Club, with the exception of Britain and Canada, have agreed to roll over the Indonesian debt. In related news, Ary Suta, chief of IBRA, said that investors taking part in a previous tender are allowed to make a bid in a retender for a 30 percent stake of the government in Bank Central Asia (BCA). "To be fair, all meeting the requirements could take part in the retender," he said.

Laksamana has decided to relaunch the tender as the previous one has been seen as tainted with price speculation and the tender process lacked transparency. In March the country's House of Representatives approved the sales of 40 percent stake of the government in BCA. A 10 percent stake was sold in July. In May IBRA, which represents the government in BCA, said 10 local and foreign investors had submitted their bids for BCA stakes.

Sources at the House of Representatives said that only two of the 10 bidders remained in the contest, one of which is affiliated to the Salim Group, the old owner of the bank. The government has banned the old owners from being involved in the bank. BCA divestment is part of the economic reform targets set by the IMF.