Indonesia Wins Pledges of New Funds

Indonesia reached a watershed in efforts to resuscitate its battered economy, winning promises of extra international funding and an agreement in principle to reschedule its debt.

The government also announced a sobering projection for the economy in a revised budget for the 1998-99 fiscal year: It forecast a contraction of 12% in the economy and 66% inflation.

Chief economics advisor Ginandjar Kartasasmita told reporters that foreign governments had agreed in principle to reschedule their part of the country’s $54.4-billion debt, the servicing of which puts a considerable strain on the budget.

He was speaking just hours after the International Monetary Fund said in Washington that it would resume loan disbursements, which had been suspended in May in the wake of protests and riots that culminated in the resignation of President Suharto.

The IMF also said that it, the World Bank, the Asian Development Bank, Australia and China had agreed to provide Indonesia with $6 billion in addition to a $41.2-billion bailout plan already in place.

“It’s a sign of both goodwill and desperation,” said Bill Keeling, head of research for Dresdner Kleinwort Benson in Jakarta, of the debt rescheduling.

“It helps to soothe some of the pain, and it is a healthy injection of realism. On the other hand, it doesn’t paint a pretty picture for international investors.”

Ginandjar welcomed the fresh funding pledges, adding that Indonesia required about $10 billion to $11 billion to meet the budget deficit and a balance-of-payments crunch brought about by the deteriorating economy.

He said part of the pledges of new loans included the rescheduling of debt but added that some fresh money will also be forthcoming.

Japan, Indonesia’s main creditor, is unlikely to reschedule its debt but may be willing to increase loan commitments, he said.