Press Release No. 03/95

Press Release: IMF Completes Ninth Review of Indonesia Program, Approves US$486 Million Disbursement

June 25, 2003

The Executive Board of the International Monetary Fund (IMF) completed today its ninth review of Indonesia's performance under a SDR 3.6 billion (about US$5 billion) Extended Fund Facility arrangement (see Press Release No. 00/4). This opens the way for release of a further SDR 344 million (about US$486 million), bringing the total amount drawn under the arrangement to SDR 2.9 billion (about US$4 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 Chair, stated:

"The Indonesian authorities are to be commended for their continued strong policy performance under their arrangement with the Fund. The economy is sustaining steady growth despite a number of external and domestic shocks; inflation has continued to decline; and there has been an additional buildup of international reserves. These developments have contributed to a further improvement in financial market sentiment, manifested in a strengthening of the rupiah, and a sharp rise in the stock market.

"Indonesia's fiscal policy remains geared toward achieving a significant fiscal consolidation and reduction in public debt. Budget performance through the first quarter was well within the program's target and is on track to achieve the full-year target of 1.8 percent of GDP. Other priorities in the fiscal area are being met through a strengthening of the decentralization framework and efforts to enhance the public expenditure management system.

"Bank Indonesia's prudent conduct of monetary policy has contributed to a sustained decline in inflation and appreciation of the rupiah. These developments have allowed interest rates to decline in support of economic recovery, and a continued cautious monetary stance will help achieve a further and lasting decline in inflation.

"Progress has also been made in structural areas, including on IBRA recoveries, which are on track to meet the annual target. Going forward, the priority is to ensure a transparent disposition of the assets of IBRA's largest debtors, and enhance recoveries from the bank shareholder settlement agreements through intensified efforts to ensure compliance. The authorities are also encouraged to keep up the momentum of the privatization program.

"Financial sector reforms continue to advance on schedule. The divestment of Bank Danamon was recently concluded, the timetable for the divestment of Bank Lippo has been announced, and the initial public offering (IPO) of the country's largest bank, Bank Mandiri, is expected to be concluded shortly. A comprehensive plan to strengthen the financial sector safety net has been completed, representing an important milestone in the reform of the financial system.

"Sustained strong progress on the government's comprehensive reform agenda will be key to improving Indonesia's investment climate and maintaining market confidence. Priorities are legal and judicial reforms, including the establishment of the Anti-Corruption Commission, the adoption of amendments to the bankruptcy law, and the reform of the Commercial Court.

"The Fund looks forward to a continued close cooperation and policy dialogue with the authorities in the period ahead," Mr. Sugisaki stated.