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Wednesday, 17 May, 2000, 11:24 GMT 12:24 UK
Indonesia seals IMF deal

Political unrest has grown in Indonesia
Indonesia has promised to continue with economic reforms in return for support from the International Monetary Fund.

The signing paves the way for the IMF to make the previously postponed $400m loan to Indonesia.

Indonesia had been due to the get the loan in early April, but it was delayed due to concerns about the pace of economic reform.

Some doubt whether President Wahid can turn the economy around

Analysts hope the news will lend support to the plunging rupiah and stock markets, but many question whether President Abdurrahman Wahid's government has the political muscle to push the reforms through.

That delay has reduced investor confidence and made it more difficult for Indonesia to secure badly needed foreign investment.

Rupiah losses

The rupiah and stock market have both lost all the gains made in October when Presdient Abdurrahman Wahid's government was elected.

At the time, his election was hailed as a landmark on the road to recovery.

The rupiah has fallen more than 18% this year and the share market has fallen nearly 27% since January.

Analysts say the chief problem is that the government has failed to set in place a coherent economic policy as well as the apparent lack of banking reform.

Others say it is unfair to blame Mr Wahid, who has only just taken the helm after 32 years of corrupt, autocratic rule.

Mr Wahid is also hampered by his need to balance the different demands of the coalition government.

The largest party in his coalition, the PDI-P of vice-president Megawati Sukarnoputri, has opposed some reforms and pressured the government into sacking Laksamana Sukardi, the minister of state investment and enterprise, who was zealous in clearing up corruption.

Now the co-ordinating minister for the economy, Kwik Kian Gie, is also threatening to resign.

Mr Wahid appeared to send a mixed signal to the markets, calling for "firm action by the central bank" to boost the currency.

Promises, promises

Indonesia forecasts economic growth of between 3 and 4% this year, with inflation expected to be within the targeted 5 - 6% range.

Indonesia promises tough action against slow-paying debtors as well as reform of the legal system.

There are an estimated $65bn of outstanding private sector debts in Indonesia, with many debtors refusing to pay creditors.

Many of the debtors are the crony companies established by the friends and relatives of deposed president Suharto.

While Indonesia finally introduced a bankruptcy law in 1998, the corruption of the legal system meant that it was largely ineffective.

IBRA, the bank restructuring agency, has also made slow progress in pursuing those debts.

And its attempts to refloat some of the bankrupt banks have met scepticism in the markets..

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See also:

02 Feb 00 | Business
Indonesia reaches deal with donors
03 Nov 99 | The Economy
IMF set to resume Indonesian loans
28 Oct 99 | The Economy
Rebuilding Indonesia's economy
31 Mar 00 | Business
Asia learns its lessons
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