Forced back to the drawing board after Indonesia's descent into political turmoil and mass violence last month swept away their previous April deal, they warned the economy was now expected to shrink at least 10 per cent in 1998 and a $41.2 billion bailout package already in place was not enough to save it.

"Despite the considerable support being provided by bilateral and multilateral sources, additional balance-of-payments support in 1998/99 of four to six billion dollars from these sources is needed to close the financing gap," the agreement said. "At this critical moment we are seeking the further support of the international community to ensure the success of our economic programme."

Hubert Neiss, the International Monetary Fund's chief Asia expert, told a newsconference in Jakarta that the new funds were expected to come from bilateral donors and international financial institutions. The new letter of intent signed by Indonesia said the beleaguered rupiah, which has plunged more than 80 percent since last July, was expected to stabilise around 10,000 to the dollar by the fourth quarter of the year against about 14,650 currently. Inflation was expected to be 80 percent over 1998 and a budget deficit of 8.5 per cent was forecast for the 1998/99 fiscal year.

The new economic targets, revised to take account of the damage from weeks of social unrest and political upheaval that accompanied the resignation of former president Suharto on May 21, painted a far more pessimistic picture than the previous deal.

"The economic programme has been driven far off track by the social unrest and political change that has taken place," the letter of intent said. "As a result of the social and political upheavals in May, the economic situation and outlook have worsenedconsiderably and the economy faces a very serious crisis." The April deal had forecast a 1998 economic contraction of five percent, inflation at 45 percent and an end-year rupiah rate of 6,000 to the dollar. But the May riots in Jakarta -- which left nearly 1,200 dead -- caused millions of dollars in damage and spurred massive capital flight, throwing the April forecasts into the realms of fantasy.

Some analysts cautioned that even the new forecasts were too rosy. "I think we're looking at something like a 20 percent contraction this year," said Kanika Singh, regional economist at IDEA consultancy in Singapore, adding that the rupiah target of 10,000 was "optimistic" and the country "is basically on the brink of sovereign default".

But Chiang Yoa Chye, head of Asia-Pacific research at CIBC in Singapore, said the forecasts were reasonable. "The IMF is obviously trying to make sure they paint as realistic a picture as possible."

In policy terms, the main changes from previous agreements involved newmeasures to soften the pain suffered by Indonesia's poor, who have been hit by spiralling prices, soaring unemployment and worsening food shortages.

Several analysts have warned that Indonesia faces a growing risk of another social explosion if the burden on the poor becomes too great.

"The budget must now allow for much higher social spending to mitigate the effects of the crisis on t8 poor," the letter of intent said. "The most urgent priority is to repair the distribution system and ensure adequate supplies of food and other necessities to all parts of the Indonesia said the overall cost of social safety net programmes in the 1998/99 fiscal year would be 7.5 percent of gross domestic product. Much of it was accounted for by subsidies on food and fuel, which the IMF agreed could remain in place until the economy improved. Previously, the IMF had wanted subsidies to be phased out by October 1. But the removal of fuel subsidies in early May sparked days of fierce rioting in the North Sumatran capitalMedan, and the new deal said a rise in food prices had to be delayed.

The agreement said another crucial requirement was restructuring the tottering banking sector. "Moving quickly to restructure comprehensively the banking system is of the highest priority," it said. Indonesia's beleaguered financial markets, now largely dormant after large numbers of foreign investors left the country, showed little reaction to the new agreement.

The rupiah was bid at 14,650 shortly after the agreement, having been quoted at 14,600 before the news. It closed in Asia on Wednesday at 14,750 per dollar.

The stock market, which was weaker ahead of the deal's announcement, continued to languish in negative territory afterwards. It was down nearly one per cent at 427 points by 0730 GMT.