If the IMF doesn't endorse the economy, the government could collapse

Seng Wun GK Goh Research

The IMF is reviewing the nation's stalled multi-billion dollar economic rescue package.

Indonesia's long economic crisis has deepened in recent months, making a resumption of IMF lending particularly significant if there is to be any prospect of a recovery.

At the same time, President, Abdurrahman Wahid is facing possible impeachment over corruption allegations with both pro and anti government protests sweeping through the country.

Stalemate

The IMF got down to work immediately on Wednesday, beginning intense talks with economic ministers which could last for 14 days.

The IMF is deciding whether to release a $400m loan which has been delayed since December, and is part of a $5bn package.

The IMF believes Indonesia's progress on reform is slow

The stalemate occurred after the IMF became dissatisfied with Indonesia's progress on restructuring its banks and big companies, many of which collapsed during the economic crisis four years ago.

The money is essential for enhancing the country's international credibility, particularly with major creditors.

Foreign businesses and institutional investors have been scared away by political instability and the slow pace of economic reforms.

The rupiah, the national currency, has lost 10% of its value this year.

"If they don't endorse the economy, President Abdurrahman Wahid's government could collapse," said Seng Wun, vice president of regional economics at GK Goh Research in Singapore.

Waiting for the verdict

It would not be the first time that the IMF has refused to release money because it says the government has failed to implement the agreed reforms properly.

Indonesia must deliver on three key issues to get the cash: the maintenance of central bank independence, the need for overseeing the bank restructuring body and a ban on borrowing by regional governments.

After the meetings in Jakarta the delegation will return to Washington and report back to the IMF board.

The board will then decide whether to release the loan.