Indonesia and IMF sign new agreement over economic bailout

JAKARTA, Indonesia (AP) — Fearing that growing economic hardships could spark new riots, Indonesia and the International Monetary Fund announced a revised bailout deal Thursday loaded with fuel and food subsidies for the nation’s poor.
The deal — the fourth struck by Indonesia and the IMF since October — calls for tough reforms while balancing the social needs of tens of millions hit hard by the region’s worst financial crisis in 30 years.
Wednesday’s agreement opens the way for the resumption of a $43 billion IMF-led rescue package, badly needed by an economy expected to shrink by more than 10 percent this year.
But even more international aid might be needed, said Hubert Neiss, the IMF’s senior official in Asia.
Asia’s financial meltdown has hit Indonesia the hardest of all, with the value of its rupiah dropping more than 80 percent in the past 11 months. Inflation and unemployement are soaring as hundreds of companies find themselves unable to cope with huge debt.
The crisis in the nation of 200 million peaked last month when protests degenerated into riots over price increases. More than 1,200 people died in the violence, which forced out authoritarian President Suharto after 32 years in power.
The IMF suspended scheduled bailout payments to Indonesia in the midst of the turmoil. Payments are expected to resume soon after the directors of the 182-nation lending agency meet in mid-July.
Under the latest plan, Indonesia has recommitted itself to making good on previous promises to the IMF for reforms, such as tightening the shaky banking system, debt reduction and greater financial and government transparency.
At the same time, the IMF has approved boosts to social welfare, such as health, education and job creation, to help cushion millions of poor. Many fear more violence will erupt without such social expenditures.
Previous bailout agreements were stymied when Suharto failed to deliver on promises to the IMF to overhaul the economy.
Critics accused Suharto of wanting to protect the vast business empires of his super-rich children and friends, who had profited from a web of subsidies, tax breaks and other benefits under his patronage.
His successor, President B.J. Habibie, has promised to make sweeping democratic reforms and cooperate fully with the IMF.