IMF spat could cost Indonesia more than $400 million

From: Per I. Mathisen (Per.Inge.Mathisen@idi.ntnu.no)
Date: Tue Feb 27 2001 - 10:17:00 MET

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    Enda en IMF artikkel. Den indonesiske regjeringen har vært for trege med å
    selge unna statseiendom, og slikt blir det bråk av. Hvem tjener på en slik
    politikk? "The IMF's continued support for Indonesia will largely depend
    on the American reaction"...

    Mvh,
    Per

    ---------- Forwarded message ----------
    Date: Mon, 26 Feb 2001 16:48:23 -0500 (EST)
    From: Robert Weissman <rob@milan.essential.org>
    To: stop-imf@venice.essential.org
    Subject: [stop-imf] Analysis: IMF spat could cost Indonesia more than $400
        million (fwd)

    ANALYSIS-IMF spat could cost Indonesia more than $400 mln

    By Joanne Collins

    JAKARTA, Feb 23 (Reuters) - Failed talks between Indonesia and the IMF in
    Washington this week have sunk relations to their lowest ebb and could
    trigger a cascade of economic problems for the troubled country.

    Economists say far more is at stake than the $400 million loan at the
    centre of the stalemate and warn of a rippling effect on other key donors
    if agreement remains elusive.

    That would be a major blow to President Abdurrahman Wahid, whose grip on
    power has been severely weakened since parliament censured him on February
    1 over two financial scandals.

    "As a result of the standoff with the IMF, we could get a cancellation of
    the Paris Club agreement and CGI (Consultative Group for Indonesia)
    pledges," said respected economist Laksamana Sukardi, a former government
    minister.

    "Indonesia cannot afford to keep this standoff because the budget is going
    to explode, there will be a deficit much more than the target deficit."

    The Paris Club of creditors last year granted Indonesia a four-year grace
    period and a 20-year rescheduling of $5.8 billion in sovereign debt while
    CGI donors pledged $4.8 billion in aid.

    The World Bank on Friday joined the chorus of concern over the deadlock,
    saying that under the worst case scenario it might be forced to withdraw
    an already pared aid programme.

    "A breakdown in the government's extended arrangement with the IMF as a
    result of a major policy slippage, including inadequate progress on bank
    and corporate restructuring, could lead to a rapid erosion of market
    confidence and deterioration in economic conditions," it said in a report.

    "In such adverse situations, the Bank would cease all new lending..."

    NO LONGER A HERO

    Hailed as a hero when Indonesia turned to it for help after the economy
    collapsed in 1997, the International Monetary Fund has since been
    castigated by the government as meddlesome.

    In a sign of rising nationalism, chief economics minister Rizal Ramli
    recently accused the IMF of being too pushy.

    But most economists say the IMF is entitled to hold Indonesia hostage
    because the country has back-pedalled on too many promises and dithered on
    too many reforms.

    "The IMF has given huge lengths of string and extended deadlines and
    perhaps been too easy," one Western economist said.

    The disputed $400 million loan -- delayed since December -- is part of a
    three-year, $5 billion programme tied to a series of tough economic
    reforms.

    Relations soured in October when Indonesia announced it would postpone
    bank stake sales in retail giant Bank Central Asia (BCA) along with Bank
    Niaga (BNGA.JK).

    Hastily-drafted regional autonomy regulations and central bank law reform
    have added to the tension.

    But some economists argue holding Indonesia to economic reforms might not
    be the best strategy given its poor track record in getting things done.

    ABN Amro Asia Securities (Indonesia) president director William Daniel
    said the IMF was essential to help drive economic reform but he questioned
    the carrot and stick approach.

    "It is important that asset sales take place but is it the end of the
    world that Bank Niaga doesn't get sold within the next three months?"
    Daniel said.

    "Is it the best approach to latch on to one or two litmus tests when
    actually what they're trying to promote are more broader-based reforms?"

    IMF TOUGHER UNDER BUSH

    A new factor in the equation for Indonesia/IMF ties and which could impact
    future loans is the new Bush administration in the United States, which
    has already hinted it might rein in the global lender.

    "The IMF's continued support for Indonesia will largely depend on the
    American reaction," the Western economist said.

    "What the U.S. administration thinks will determine whether they will
    continue to throw a line out to Indonesia," he added.

    But one diplomat said President George W. Bush's tougher stance on the
    IMF, which emerged during the presidential campaign, might not materialise
    in office.

    "Its really too early to see any impact, specifically on Indonesia, from
    the new administration," the diplomat said.

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