Jakarta's IMF Pact Permits Increase In Social Spending
JAKARTA, Indonesia -- The International Monetary Fund's revised pact with Indonesia to restart lending of $43 billion in assistance will allow Jakarta greater social spending and a budget deficit of 8.5% of gross domestic product for the fiscal year ending March 31, 1999.</br></br>This deficit will be wholly financed by foreign borrowings and will, subsequently, require additional funds of at least $4 billion from outside sources, the IMF's top man in Jakarta, Hubert Neiss, said.</br></br>But he stressed that these funds were urgently required to head off an economic "emergency" in the world's fourth-most-populous nation. "Production and exports have been disrupted, unemployment is increasing, the banks are paralyzed, and food prices are rising," Mr. Neiss said. "It's no wonder the rupiah rate has depreciated."</br></br>Deputy U.S. Treasury Secretary Lawrence Summers hailed the new pact between Jakarta and suggested the U.S. will help Indonesia get the money it needs both from international financial institutions and other countries; he wasn't specific. The success of the IMF program, he added, depends on Indonesia's "ability to sustain both economic and political reforms." Financial analysts voiced surprise at the economic assumptions under which the IMF and Indonesia calculated this latest pact. The rupiah is targeted to end the year at 10,000 against the U.S. dollar, substantially stronger than its Thursday close of 14,700. However, many currency analysts fear that the rupiah could weaken in the months ahead, given social and political concerns.</br></br>All of this raises the possibility that Indonesia's budget deficit could actually exceed the target of 8.5% of GDP. The government will probably have only two options to cover a bigger deficit, analysts say: the seeking of even more international assistance or the restructuring of sovereign debt. Either way, one Jakarta-based diplomat said: "It looks like we [the international community] will be asked to cough up again."