News Brief No. 99/13

News Brief: IMF Completes Review, Augments the Program by US$1 Billion and Approves US$460 Million Credit Tranche for Indonesia

March 25, 1999

Stanley Fischer, First Deputy Managing Director of the International Monetary Fund (IMF) said: "I am pleased to announce that, in support of the Indonesian government’s economic program, the IMF’s Executive Board today approved the completion of the fourth review under the Extended Fund Facility (EFF), 1 augmentation of the program by SDR 714 million (about US$1 billion), and release of the next SDR 337 million (about US$460 million) credit tranche. Including this release, total purchases by Indonesia since the onset of the Asian crisis will amount to SDR 6.8 billion (about US$9.3 billion), with a further SDR 2.2 billion (about US$3 billion) available in the period to November 2000."

Policy implementation has continued to be satisfactory since the last review was completed in December 1998, and the major macroeconomic targets under the program for 1998/99 have been met. Monetary policy has remained firm, while fiscal policy has started to provide the intended stimulus to the economy, primarily through increased spending on the social safety net. However, market sentiment remains fragile, partly reflecting political uncertainties and civil unrest.

Important progress has recently been made in advancing bank restructuring, which is crucial to the eventual recovery of the economy. A major program of private bank recapitalization and closures was announced on March 13 and is being implemented smoothly. Steps have been initiated toward state bank restructuring that will need to be carried decisively forward within the next two months. Corporate restructuring also needs to be implemented more forcefully and, toward this end, strengthened measures have been agreed to make the Jakarta Initiative fully operational as well as to implement the bankruptcy law consistent with international practice. The INDRA scheme has been revised to encourage greater participation.

Fischer emphasized that considerable risks still lie ahead for the economy. "With the implementation of key structural reforms, further consolidation of macroeconomic stability, and the additional official external financing that has been committed by Japan, the World Bank, and the Asian Development Bank as well as by the IMF, an upturn in economic activity could commence in the second half of this calendar year."