Indonesia, IMF near economy package, students clash

JAKARTA (Reuters) - Indonesian troops Wednesday fired tear gas and charged at student protesters as officials said the government and the IMF should agree on measures to revive the economy by next week.

At least 39 students were injured in the clash in a university in the Central Java city of Solo, witnesses said. Some 1,000 of the students were earlier blocked by troops and police from taking the protest rally outside the campus.

The students threw stones at the troops, who fired tear gas in return and charged at the students with canes, the witnesses said. Of the injured, two were admitted to hospital, they said.

Hubert Neiss, the head of the IMF delegation in talks with Indonesian officials, said the two sides were likely to agree by next week on the measures needed to lift Indonesia out of its worst economic crisis in three decades.

The measures were likely to focus on ways to resolve Indonesia's $74-billion private debt and finance guarantees to kick-start moribund trade, analysts said.

"We are making progress," Neiss, the director of the International Monetary Fund's Asia-Pacific operations, told reporters after meeting senior Indonesian cabinet ministers.

Asked when the 10-day-old talks might conclude, he said: "We hope sometime next week."

Australian Foreign Minister Alexander Downer, who has campaigned for a relaxation of IMF conditions because of the potential for unrest in Indonesia, said in Tokyo that the talks were at a sensitive juncture.

"But the talks clearly are heading at this stage in the right direction," he told Reuters Television while on a visit to discuss the crisis with Japanese officials.

"That is not to say an agreement has yet been reached. That might take a week or two yet," he said.

The Japanese daily Nihon Keizai Shimbun said banks that are leading creditors of Indonesian companies were likely to accept a plan to extend the loans by six months.

It said companies would be allowed to postpone repayment of principal for six months but would have to continue interest payments.

No further details were immediately available. Along with the package of measures, Indonesia is likely to unveil tax incentives and revised capital market regulations to attract foreign funds for bank restructuring and help resolve overseas debt.

Newspapers quoted Bank Indonesia Director Miranda Gultom as saying the incentives and an ongoing program to privatize state-owned companies would help bring in foreign funds.

The rupiah's fall by about 70 percent since July has led to sky-rocketing inflation, a near-standstill in trade and the specter of huge unemployment.

There have been regular student protests for several weeks against President Suharto and his handling of the crisis but most have been peaceful. Riots broke out last month in several towns over higher prices of food.

Indonesia received a $40-billion IMF bail-out package last year in exchange for economic reform. The package was revised in January after the situation deteriorated and is now under review.

Officials said the reforms and the other measures on the economy would be combined into one package.

Indonesia and the IMF are discussing the measures in five groups covering monetary policy, bank restructuring, the budget and subsidies, structural reforms and debt.

Indonesia has said its prime concern is strengthening the rupiah, but analysts said the IMF was also keen on looking at the underlying cause of the currency weakness, including private sector debt.

Neiss, the IMF director, has said the aim was to stabilize the rupiah and bring it to more appropriate levels.

Another possibility on the debt front was for Indonesia to adopt a version of the Mexican government's Ficorca program of the early 1980s.

Under that plan, private debt was rolled over five to 10 years, companies paid the Ficorca in pesos rather than dollars, and the Ficorca then paid foreign creditors.

"It is a kind of quasi-nationalization of private debt," Daniel Lian of ANZ Investment Bank told Reuters Financial Television.

"The key is for international creditors to be willing to roll over those corporate debts at the new terms. In the case of Indonesia, this remains to be seen, but I think it is an encouraging development."

Analysts said Japanese banks, the largest creditors of Indonesian companies, will have to agree and Japan's help will be crucial to trade financing.

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