Jakarta, 11 June 2003 —The Indonesian Government represented by the Minister Coordinator for Economic Affairs Dorodjatun Kuntjoro-Jakti, the Finance Minister Boediono, and the Governor of Bank Indonesia Burhanuddin Abdullah today signed a supplementary Letter of Intent to the Managing Director of the International Monetary Fund (IMF) Horst Kohler. The letter provides an update on the progress in meeting the policy objectives under the economic program for 2003 described in the Memorandum of Economic Policies (MEFP) of March 18, 2003.

The letter details the economy’s success in the past months in restoring market confidence and enhancing growth prospects. The rupiah has appreciated further, inflation has remained on a downward trend, and there has been an additional build-up in international reserves, while economic growth has been sustained. These developments have occurred against the backdrop of turbulent international economic and political events, revealing the Indonesian economy’s growing resilience to adverse shocks.

Fiscal policy is on track to achieve the 2003 deficit target of 1.8 percent of GDP. In the first quarter, the budget unexpectedly recorded a surplus, in part reflecting temporary expenditure shortfalls. Monetary policy remains firmly geared toward supporting the downward trend in inflation and maintaining exchange rate stability. While reducing interest rates further, Bank Indonesia has achieved its monetary and reserves targets with sizeable margins.

A comprehensive plan for a sound financial safety net has been developed by the Ministry of Finance and Bank Indonesia. As expected, the plan provides for the creation of a deposit insurance scheme, lender of last resort capability for BI, and a supervisory and regulatory agency for the financial sector.

IBRA continues to make good progress toward achieving its annual asset recoveries target. Results from the recently completed loan sale program were encouraging, and IBRA has recently launched the sale of virtually all of its remaining asset holdings.

Improving the governance of state banks remains a priority of the government. The Ministry of State-Owned Enterprises has begun strengthening its staff resources to monitor state bank performance, additional commissioners are being appointed at BRI and BTN, and new annual performance contracts for bank managers have been prepared as needed.

In the legal area, the Government continues to work toward establishing the Anti-Corruption Commission (ACC) by end-year. The amendments to the Foundations Law were recently submitted to Parliament. During the debate of the amendments, the legal basis for the Supreme Audit Agency (BPK) to undertake audits of military and other foundations receiving state funds or financing of state activities will be clarified. In the area of public sector governance, the Government is making progress in implementing its program of state enterprise audits.

The letter will be presented to the IMF Executive Board for its consideration later this month. A successful completion of the review will enable the next IMF tranche to Indonesia of approximately US$450 million.

 Source :  Office of Coordinating Minister for Economic Affairs