IMF OKs $1-Billion Loan Installment for Indonesia

The International Monetary Fund on Monday approved a $1-billion installment in a loan package for Indonesia, opening the way for disbursement of portions of a $45-billion global economic rescue program for that financially troubled country.

The action came with a stern warning from the 182-country organization that it will closely monitor conditions to make sure Indonesia is following through on sweeping economic reforms, following two previous attempts in which Jakarta balked at carrying out its promises.

The IMF action, which was supported by the Clinton administration, was expected to pave the way for bilateral loans from several major industrial countries in hopes of easing Indonesia’s economic slump and averting some of the political turmoil the country has been experiencing.

It also could intensify opposition in Congress to legislation that would give the IMF an extra $18- billion line of credit to help bolster its lending coffers. The bill is in trouble in the House of Representatives.

The move came as the Indonesian government said that it would eliminate government subsidies on gasoline and other fuels to help reduce its budget deficit--a move that is certain to send fuel prices soaring and possibly spark further political unrest at home.

President Suharto also assured foreign investors that he would eliminate clove production monopolies, largely owned by his own family, as the IMF has demanded a reduction in what has become known as “crony capitalism” in Indonesia.

Monday’s action marked something of a watershed for Indonesia. The IMF was supposed to disburse $3 billion in loans to Indonesia on March 15, but it withheld the money after Suharto reneged on previous promises to overhaul his economy.

After weeks of negotiation--and personal intervention by President Clinton and other Western leaders--the two sides signed an accord in which the IMF softened or postponed some of its demands, and Indonesia agreed to strengthen its promised reforms.

Stanley Fischer, the IMF’s deputy managing director, called the move “a signal” from the international community to provide other promised economic assistance to Indonesia.

However, Fischer left no doubt that the IMF will be proceeding cautiously in Indonesia’s case in the wake of its earlier difficulties with the Suharto government.

He said the $3-billion installment would be dispensed gradually, at $1 billion a month, between now and July, with Monday’s announcement the first in the series.

“We are under no illusions that everything will be smooth sailing [with Indonesia] from now on out,” Fischer told reporters. “We will continue to follow this program very, very closely on a daily basis.”

Although the installment approved Monday was not expected to eliminate Indonesia’s problems, it is certain to open the way for another $3 billion in aid from the World Bank and Asian Development Bank, as well as bilateral loans from Japan, New Zealand and Malaysia.

In addition, the United States has pledged to provide Indonesia with $3 billion in contingency loans if the money from the IMF and other organizations proves to be inadequate. So far, the Treasury Department has not disbursed any of those pledged funds.

The reforms the IMF has demanded of Indonesia include tighter regulation of its banking system, restructuring corporate debt, ending subsidies to special interest groups and eliminating monopolies, some of which are owned by Suharto’s family.

The program also includes a plan to keep money and credit policies stable in hopes of strengthening the country’s beleaguered currency, the rupiah, which has fallen by about 85% since Indonesia’s financial crisis began last summer.

The IMF’s rescue efforts in Asia have come under criticism in Congress, where lawmakers have been reluctant to approve a Clinton administration bill to provide an $18-billion line of credit to the organization in case of a similar financial crisis elsewhere.

Last week, GOP leaders stripped the IMF measure from a bill to pay expenses of U.S. troops in Bosnia, and on Friday, House Democrats warned that they too might oppose the legislation if Clinton continued to press the IMF to push for a freer flow of global capital.

House leaders said Monday that they still have no firm plan on when to bring the IMF legislation to the floor. Rep. James A. Leach (R-Iowa) said Clinton must exercise more leadership in persuading lawmakers to go along with the IMF legislation.