The International Monetary Fund has failed to restore confidence in the Indonesian economy, a senior official in the organisation has admitted.

Bijan Agheveli, the IMF's deputy director for the Asia Pacific region, said he was surprised by the negative reaction of financial markets to the reform programme signed with the Indonesian government 10 days ago. Many people now question the fund's involvement in the country.

Mr Agheveli added that the collapse of the Indonesian currency, the rupiah - despite the IMF's commitment of billions of dollars in aid - does not reflect the real strength of the economy.

The rupiah last week hit a new low against the dollar, dropping to less than 20% of its value seven months ago.

Companies unable to pay debts

Many businesses are facing bankruptcy but Mr Agheveli said confidence would return once investors started to see IMF reforms being implemented.

However, he acknowledged that if the rupiah fails to recover, the government will not hit targets set in its revised budget last week.

Under the terms of the rescue package, President Suharto has agreed to abolish monopolies and special privileges given to businesses owned by his family and close associates.

The measures were more far-reaching than expected, but financial analysts say the real problem dragging down the value of the rupiah is the inability of hundreds of Indonesian companies to repay huge loans.

Mr Aghaveli said, however, that the IMF was not in a position to sort out private corporate debt, which was the responsibility of each company.

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