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Indonesia races to meet IMF deadline

JAKARTA: Indonesia said on Saturday it had until April 12 to fulfil a series of pledges made to the International Monetary Fund, which has postponed a $400 million loan payment amid concern over the slow pace of reform.

Chief economics minister Kwik Kian Gie told reporters an IMF team would come to Indonesia after April 12 to review its progress. Indonesia must pass such reviews before the disbursement of each tranche of the IMF's $5 billion three-year loan package for the country's struggling economy.

Kwik said Indonesia still had to complete 42 tasks from its latest letter of intent to the IMF, including starting legal action against uncooperative debtors, clamping down on corruption and recapitalising state banks.

"Those things need to be done, or else the loan could be delayed again," he said ahead of a special cabinet meeting to discuss speeding up economic reform.

Some of the pledges in the letter of intent will not be met -- it contains a commitment to hold an initial public offering for Bank Central Asia by end-March, but the Indonesian Bank Restructuring Agency (IBRA) has delayed the flotation.

The IMF has been tolerant in the past of some slippage, however, as long as reforms remain broadly on track.

A loan payment of $400 million was due in early April, but the IMF said last week it was now not expected until May at the earliest. The Fund is particularly concerned at Indonesia's failure to implement promised measures to tackle its $65 billion private debt burden and take recalcitrant debtors to court.

SUBSIDY CUTS A CONTENTIOUS ISSUE

Indonesian President Abdurrahman Wahid publicly castigated his economic team earlier this week for dragging their feet and called Saturday's cabinet meeting to discuss how the necessary measures could be pushed through quickly.

But his government's latest policy U-turn -- its last-minute decision on Friday to postpone cuts in fuel subsidies -- risks straining relations with the IMF even further.

Wahid said measures to lessen the impact on the poor of fuel price rises were not yet in place. The planned price rises had sparked fears of mass protests across Indonesia.

Cutting subsidies was a key part of Indonesia's reform pledges to the IMF, and was a central plank of the country's April to end-December budget which aimed to keep the budget deficit to under 4.8 percent of gross domestic product.

Kwik said he was confident the delay in cutting subsidies would not have a significant impact on the budget, as long as it did not drag on for too long.

"It depends on how long the delay is, but a delay of three months won't be damaging. We could reduce spending on development projects, such as delaying fixing broken roads and bridges," Kwik said.

The World Bank and IMF said the government was in the best position to decide on the timing of cutting the subsidies.

World Bank country director Mark Baird said Wahid was right to delay the move until adequate measures were in place to protect the poor.

But Indonesia's failure to put such measures in place represents another example of the foot-dragging on reform that has left its donors increasingly exasperated, analysts say. -Reuters