IMF gives cautious approval to new Indonesian regime

INDONESIA'S new leadership has received the guarded endorsement of the International Monetary Fund, raising hopes in Jakarta that it will allow the country to start drawing down loans again under a $41bn rescue package agreed last year.

Michel Camdessus, managing director of the IMF, described Indonesia's economic team as "most solid and credible" and also praised the country's new President, Jusuf Habibie for his support for the IMF.

Meanwhile Asia-Pacific finance ministers ending a weekend meeting yesterday found no easy ways to strengthen Asia's troubled economies but signalled cautious support for the new government of Indonesia.

Policy-makers from the Asia-Pacific Economic Co-operation forum welcomed reform plans announced over the weekend by the new Indonesian government, though they stopped short of setting a date for restarting international aid until President Habibie restored order to the capital, which has been ravaged by violent protests against the former regime.

Mr Camdessus' comments followed telephone talks over the weekend with the Indonesian Finance Minister, Ginandjar Kartasasmita, which held out the prospect of a speedy resumption of international aid.

Indonesia desperately needs dollars to get its bankrupt companies working again and keep the spectre of sovereign default at bay. But the IMF has suspended payments of a $10bn loan, the central plank of a $41.2bn rescue package.

The IMF's top Asia expert, Hubert Neiss, is due to fly to Jakarta this week to review the situation. The stakes could not be higher, analysts say.

The IMF's reputation, Mr Habibie's political survival and the threat of complete economic meltdown in Indonesia all rest on the success of the relationship. Mr Habibie must perform a delicate balancing act, keeping international lenders happy enough to inject funds into Indonesia while trying to soften the blow on ordinary Indonesians of the requisite economic changes. Analysts are not confident of his chances of success.

"It's not easy to find someone with less credibility than Suharto," said one. "But in Habibie, Indonesia has managed to come up with one."

Mr Habibie is regarded as fiscally profligate, economically naive and fond of the kind of high-spending projects that are anathema to the IMF.