JAKARTA, June 12: Indonesia said on Wednesday it has signed a new agreement with the International Monetary Fund (IMF) after promising to cut its budget deficit, push ahead with the sale of state-owned banks and tackle other reforms.

The signing on Tuesday evening would “pave the way” for the next 340 million dollar tranche of the fund’s loan programme, said Mahendra Siregar, a special assistant to top economy minister Dorodjatun Kuntjoro-Jakti,

The deal went ahead despite recent criticism from leading Indonesian politicians of the fund’s role.

Kuntjoro-Jakti said the IMF board is expected to approve the disbursement in the next few weeks.

He was speaking at a mid-year review meeting with the Consultative Group on Indonesia. Last November, in a separate programme to the IMF’s, the CGI pledged $3.14 billion in loans for the debt-crippled country.

The IMF has since 1998 been coordinating a five billion dollar assistance package in return for promises of action which are spelt out periodically in the letters of intent.

These include setting economic targets, privatisation programmes and the sale of numerous banks taken over by the state Indonesian Bank Restructuring Agency (IBRA) during and after the 1997-1998 regional financial crisis.

The latest letter of intent between Indonesia and the IMF also promises “strong actions” against former bank owners who refuse to repay billions of dollars in bailout funds.

It says a law setting up an anti-corruption commission is expected to be passed soon.

The new pact follows reports of IMF concern about a sharp rise in the budget deficit for the first quarter, to 5.6 trillion rupiah from the targeted 2.7 trillion.

The letter blames severe floods in January and February, delays in implementing tax changes and higher interest payments.

But the letter says the government will sell up to a 20 per cent stake directly into the market and relaunch the sale of a majority stake by the end of this month.

A majority stake in Bank Danamon would go on sale next month and in Bank Lippo by year-end.

The sale of a 30 per cent stake in state-owned Bank Mandiri would be launched in the third quarter.

The debtors agreed in 1998 to repay within four years some $13 billion in loans granted through IBRA at the height of the financial crisis.—AFP