Press Release No. 03/225

Press Release: IMF Completes Eleventh and Final Review of Indonesia's EFF Program, Approves US$505 Million Disbursement

December 19, 2003

The Executive Board of the International Monetary Fund (IMF) completed today its 11th and final review of Indonesia's performance under an SDR 3.6 billion (about US$5.3 billion) Extended Fund Facility arrangement (see Press Release No. 00/4). The completion of the review enables the release of SDR 344 million (about US$505 million), which would bring total disbursements under the program to SDR 3.6 billion (about US$5.3 billion).

At the conclusion of the Executive Board's discussion on Indonesia's economic and structural reform program, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, stated:

"The Indonesian authorities are to be commended for bringing their Extended Arrangement with the Fund to a successful conclusion. An impressive fiscal consolidation and disinflation effort, together with reduced external vulnerability, have laid the basis for a sustained improvement in growth and employment prospects in the period ahead. The Fund is encouraged by the government's determination to build on these achievements by further strengthening the institutional and governance underpinnings for a durable recovery of investment and business activity.

"Policy performance since the last review has continued to evolve favorably. Fiscal consolidation continues to advance. Budget execution is on track to achieve the 2003 deficit target. The 2004 budget, underpinned by ongoing reforms to tax and customs administration, represents a further step towards a sustainable fiscal position. Maintenance of market confidence will help ease the transition to the increased reliance by the authorities on domestic financing sources expected in 2004.

"A stable exchange rate and continued declines in inflation have allowed reductions in interest rates in support of the economic recovery. With inflation risks now more balanced, Bank Indonesia's commitment to maintain a cautious monetary stance will help safeguard the hard-won gains in inflation and exchange rate stability.

"Satisfactory progress continues to be made with key structural reforms. The divestment of government ownership in banks is proceeding well; the Indonesia Bank Restructuring Agency is making good progress in bringing its asset sales programs to a successful conclusion; and preparations toward the establishment of a strengthened financial safety net are at an advanced stage. It will be important to sustain these reform efforts and, in particular, to follow up decisively on the recent steps to address the financial irregularities at a major state bank by strengthening the governance and monitoring of state banks.

"In the period ahead the challenge before the Indonesian authorities will be to maintain investor confidence through the continuation of sound policies, while acting vigorously to strengthen the investment climate to enable Indonesia to realize its economic potential. The government's economic package for 2004, as set out in its "White Paper", provides a sound framework for meeting this challenge. The Fund will continue to work closely with the authorities to assist with the implementation of these reforms, and looks forward to maintaining a close policy dialogue in the context of post-program monitoring," Mr. Sugisaki stated.