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Monday, 21 May, 2001, 14:02 GMT 15:02 UK
Indonesia moves to appease IMF
President Abdurrahman Wahid
Wahid's disputes with parliament do not help the economy
Indonesia has moved to repair relations with international creditors by presenting a new 2001 budget to parliament.

The country has also dropped plans to do a controversial bond issue and will cut state subsidies for fuel and electricity.

At the beginning of May, the International Monetary Fund (IMF) walked out of talks with Indonesia over a stalled 5bn aid programme.

At the time, the Fund said that the next tranche of financial support would be contingent upon the Indonesian parliament revising its budget plans.

But in spite of Indonesia's latest efforts, the IMF said on Monday that it will not resume lending to Indonesia until the country makes its central bank more autonomous.

At the end of last week, the IMF had made positive noises about Indonesia's progress, saying the steps taken were "bold and necessary".

More realistic

Monday's new budget looks more realistic, reflecting Indonesia's efforts to prevent its budget deficit from ballooning to 6% of its gross domestic product (GDP).

The IMF wants the deficit to fall to 3.7% of GDP.

Protesters in support of President Wahid
Fuel cuts could spark national unrest
Indonesia's decision to cut subsidies and thereby push up the cost of fuel by 30% and electricity by 20% should help reduce the deficit, but it could also spark national unrest.

The government provides substantial subsidies to help the poor - at a huge cost of 53 trillion rupiah ($4.6bn).

The head of Indonesia's budget commission Benny Pasaribu said the government was committed to replacing subsidies with less expensive compensation programmes, which are more targeted at the poor.

Under the IMF programme, Indonesia must phase out all subsidies by 2003.

Bond issue delayed

The country has also "delayed indefinitely" its plans to issue bonds backed by gas exports to Singapore.

It had hoped to raise between $500m and $1bn, which prompted the Paris Club of creditors to fear that the bond could hit future debt repayments by the country.

In a concession to international lenders, finance minister Prijadi Praptosuhardjo said on Monday: "It's just not clear legally and also some of the donor countries and the IMF, have already requested [a delay]."

Indonesia has been negotiating with international creditors for months over its massive debts.

The IMF and the World Bank have been dissatisfied with the slow pace of reform in the country, particularly relating to the sale of banking assets and autonomy laws for the central bank.

Efforts by the parliament to oust President Abdurrahman Wahid over financial scandals have also complicated the situation.

On Monday the Indonesian vice-president Megawati Sukarnoputri warned against the break-up of the country - a move seen as putting increasing pressure on the president.

In a speech to military officers, Ms Megawati said Indonesia risked becoming the sick man of Asia if it failed to make the transition to democracy.

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See also:

21 May 01 | Asia-Pacific
Megawati puts pressure on Wahid
01 May 01 | Business
Indonesia reaches crisis point
13 Apr 01 | Asia-Pacific
Loan to help Indonesia's poor cancelled
11 Apr 01 | Business
Indonesia in critical IMF talks
12 Mar 01 | Business
Exxon Mobil closes Indonesian fields
23 Feb 01 | Business
Indonesia at the crossroads
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