News Brief No. 98/31

News Brief: IMF Approves US$ 1 Billion Credit Tranche for Indonesia

August 25, 1998

Michel Camdessus, Managing Director of the International Monetary Fund, said: "I am pleased to announce that the IMF's Executive Board today approved the next SDR 734 million (about US$1 billion) credit tranche for Indonesia. At the same time, the Executive Board approved an extended fund facility (EFF) for Indonesia totaling SDR 4.7 billion (about US$6.2 billion) in support of the government’s broad-based program to achieve economy recovery. The EFF replaces the three year stand-by credit approved by the IMF on November 5, 1997 under which disbursements have already amounted to SDR 3.7 billion (about US$4.9 billion), and covers its remaining 26-month period through November 2000 ¹. The amount of the credit available under the EFF and its duration are identical to those remaining under the stand-by credit that it replaces. However, the repayment period for financing under the EFF, which is intended to support economic programs dealing with deep-seated structural problems, is substantially longer than under a stand-by credit.²"

"The replacement of the stand-by by the EFF is in response to the broadening of Indonesia’s economic strategy in recent months under the stand-by credit to include a wide-ranging program of structural reforms. These include programs for the restructuring of the banking and corporate sectors, as well as the deregulation of monopolies, the privatization of state-owned industries, and trade liberalization. This comprehensive reform strategy supports macroeconomic policies—a tight monetary stance combined with a fiscal deficit that, while accommodating increased social spending, is fully foreign financed—designed to strengthen the rupiah and reduce inflation. The longer repayment period under the EFF will allow time for the reform program to take full effect, and will further strengthen the outlook for the balance of payments, which is already benefitting from substantial bilateral and multilateral external financing and programs for the restructuring of banking system and corporate debt to private creditors," he said.

Camdessus noted the good policy implementation in recent months, and was encouraged by the recent appreciation of the rupiah. Looking forward, he emphasized the importance of maintaining an adequately tight monetary policy to reduce inflation and further strengthen the rupiah. He also stressed the importance of rapid progress with banking system and corporate restructuring to lay the foundation for a resumption of growth.

² Disbursements under an extended arrangement are repayable over a period of 4 1/2 to 10 years, as against a repayment period of 3 1/4 to 5 years for disbursements under a stand-by arrangement. The schedule of drawings is summarized in Table 1.