Indonesia faces meltdown as it sweats on IMF loan

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Southeast Asia

Indonesia faces meltdown as it sweats on IMF loan

JAKARTA - Indonesia's socio-economic crisis deepened on Tuesday, with the country deadlocked over an agreement with the International Monetary Fund for an essential US$400 million loan.

In Jakarta, the currency markets continued their seemingly irreversible slide and the day saw one of the biggest street demonstrations ever, with some reports saying up to 20,000 protesters gathered outside the Presidential Palace calling for President Abdurrahman Wahid to resign. A day earlier, protesters also gathered while a senior minister warned that the country is on the brink of collapse.

Indonesia's central bank stepped in to help the troubled rupiah as the battered currency slid to a morning low of Rp10,600 to the US dollar, as economic prospects look increasingly grim as social and political unrest intensifies. Indonesian stocks, meanwhile, were trading at their lowest levels in two years, with investors warning that overseas interest had almost totally disappeared.

The rupiah improved after Bank Indonesia sold up to $30 million to aid the ailing currency. The intervention had some effect, with the currency climbing to Rp9,407 in late afternoon trade. However, now that the rupiah has once again breached the psychologically important 10,000 level, analysts fear it will resume its drop, possibly toward all-time lows.

The stock market has also been rocked by domestic strife and at close on Tuesday the Jakarta Stock Index was down 10.7 points or 2.7 percent to 385.91 points, its worst level since March 1999.

Moody's credit-rating agency revised its outlook downward on Indonesia's creditworthiness last week, citing political turmoil, and saying there is no cause for optimism in the forseeable future, with the sliding currency compounding a mass of problems impacting all at once. "We are getting a lot of nervousness," said Andre Cita, director of institutional sales for PT Kim Eng Securities. There are few positives about Indonesian economics, he added. "From the international investor's perspective, the priority has to be social stability, and then political stability," Cita said. "Right now, there are indications of increasing social instability."

Unrest on the streets of Jakarta continued to escalate Tuesday, as demands for Wahid to step down continujed unabated. Indonesian police estimated up to 20,000 protesters, one of the largest demonstrations since Wahid came to power, gathered outside the Presidential Palace in Jakarta calling on the president to resign.

With fists in the air, chanting "Gus Dur Mundur" (Gus Dur resign) students from at least a dozen universities demanded the president step down so that under the constitution Vice President Megawati Sukarnoputri can take his place. Wahid, however, on Monday said he had no intention of resigning, warning that if he did so the country would break apart.

Coordinating Minister of Political Social and Security Affairs Susilo Bambang Yudhoyono added to the air of crisis on Monday when he said: "Without stability, law and security, our country will become a sea of mayhem, violence and worry. This uncertainty will have a severe impact, not only on the political front but also in our economic, social and security fields."

The continued political, economic and social turmoil will do nothing to lift the deadlock Indonesia has reached with the IMF over a crucial $400 million loan it is trying to secure. Without the loan, Indonesia will not be able to refinance a $5.8 billion debt with the Paris Club of creditor nations. The IMF has issued a tough set of wide ranging reforms Indonesia must adhere to before the fund can revise its Letter of Intent (LoI) to supply the loan.

While an agreement is essential to bring some semblance of credibility to the beleaguered Indonesian economy there are fears that Jakarta cannot meet the strict criteria imposed by the IMF, even though Foreign Minister Alwai Shihab said Monday he was hopeful the IMF talks would be fruitful. Monday's decision by the government to postpone fuel price rises for the general population will have done little to help its case with the fund, which has been pressing Indonesia to shed costly subsidies, including those on fuel prices and energy. But Jakarta feared creating further unrest by rising prices.

Major issues are left unresolved with the IMF, the fund demanding four requirments before sending a team to Indonesia to revise the LoI. The demands concern amending the law regarding Bank Indonesia in order to form a panel of economic experts; decentralization to meet IMF objections concerning the regions' demanding loans; the divestment of Bank BCA and Bank Niaga; and alterations to the government regulations on regional financial information.

Indonesia's LoI chief negotiator Dipo Alam said that the coordinating minister for economic affairs would appoint two experts to serve on the panel of Bank Indonesia, and that the divestment of Bank BCA and Bank Niaga would pose no problem as an agreement had already been reached between the government and the House of Representatives. The IMF has questioned the divestment because of the uncertainties and ambiguities of the value of shares to be divested.

Dipo was optimistic that all the factors which had obstructed the revision of the LoI would be settled before the end of the month.

With delays in the Indonesian parliament holding the talks up, however, there is little cause for optimism. The intensifying power struggle between the president and its lawmakers will likely delay much needed economic restructuring with reforms becoming bogged down in the legislature. Ratification of the IMF deal looks a long way off.

http://atimes.com/se-asia/CC14Ae01.html

-- Carl Jenkins (somewherepress@aol.com), March 14, 2001


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