CONFIDENTIAL
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probably take place in the New Year.
Talks on a new IMF programme began with the
Government aiming for an EFF and CFF but have been suspended. The Paris Club
agreement has recently expired and the authorities have indicated that they will pay
only 30% of interest due until a new multilateral is negotiated (unlikely before a
new IMF programme is in place). After months of protracted talks, the US has
agreed to pay a total of $960 mn for the use of Subic Bay and Clark Airbase over the
next two years. Although this is almost three times more than the present level of
compensation. In addition, the US will target $500 mn of Overseas Private Corp and
EXIM assistance through 1991. However, the agreement has angered nationalists in
the Filipino Senate. While the Senate has passed a bill which aims to limit debt
service to 20% of exports, the move is unlikely to be supported in the Congress.
Malaysia
The budget deficit is now
61 The Budget for FY 1989 is mildly expansionary.
expected to rise by about 1 percentage point to just under 9% of GDP. Real GDP
growth is officially forecast at 7.4% for 1988. The strong economic recovery has
boosted import volume and the authorities now project a current account surplus of
$1.2 bn in 1988 (cf $2.4 bn in 1987). However, the Government is continuing with
its debt prepayment programme and expects to have prepaid $1 bn of foreign loans in
1988.
Indonesia
62 The Government has announced a fresh series of de-regulation measures focussing
on the financial system and trade reforms. While the Government's aims are to
promote competition and nurture the embryonic capital market, in the short term the
measures have provoked capital flight and inter-bank overnight rates have risen from
18.7% to 31%. Rumours of an imminent devaluation do not appear to be well-founded
and both the IMF and IBRD are satisfied that Indonesia can withstand the present
vicissitudes in the oil market.
Pakistan
63 It is too early to speculate what implications the elections in Pakistan will
have for economic policy, although negotiations with the IMF are at an advanced
stage for a 15 month SBA worth SDR 273 mn and a 3 year SAF worth SDR 347 mn. If
the negotiations reach fruition this implies that the new administration will have
to implement a far-reaching adjustment programme whilst ensuring the military are
still onside.
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