Managing Director's Statement: Indonesia Announces Comprehensive Reforms; Seeks to Rehabilitate Banking Sector

• Pages: 33-34

Page 33

These programs continue and extend the implementation of the reinforced set of economic reforms announced by President Suharto on January 15. A wide range of measures to eliminate structural distortions and restrictions

These programs continue and extend the eco- nomic reforms.

-Camdessus has already been put in place before their committed date of February 1. In particular, all special privileges granted to the National Car Program have been eliminated; special funding for IPTN, the aircraft manufacturer, has been rescinded; restrictive marketing arrangements have been abolished; domestic trade in agricultural products liberalized; and the BULOG monopoly restricted solely to rice. Also, a revised budget was submitted to Parliament.

To prevent the further erosion of confidence in the banking system, which has been under severe pressure in light of the extraordinary depreciation of the rupiah, the government has decided that from today it will guarantee the obligations of depositors and creditors. At the same time, the government is Page 34 moving decisively to resolve the underlying financial difficulties of the banking system by establishing the Indonesian Bank Restructuring Agency (IBRA), which will be given broad powers to restructure all financially weak banks.

As the exchange rate has depreciated excessively, many corporations have found it increasingly difficult to service their external debt. To restore orderly debtor-creditor relations, a private initiative is under way to put in place a framework for negotiations between individual creditors and debtors to work out viable debt restructuring arrangements on a voluntary and case-by-case basis. Agreements under this framework would not involve funds from the public sector. In addition, action to strengthen bankruptcy procedures would...