Bracing for the hight cost of life after the IMF<\/p>\n
Mari E. Pangestu, Centre for Strategic and International Studies,
\nJakarta<\/p>\n
The President's national day speech and proposed budget for
\n2004 provide the first glimpses of the issues and constraints
\nthat the government and Indonesia will face after we exit from
\nthe International Monetary Fund program. Based on People's
\nConsultative Assembly (MPR) Decree No. 6\/2003, the Indonesian
\ngovernment decided not to continue the IMF program and has chosen
\nto go with the Post Program Monitoring (PPM) option. Under this
\noption, Indonesia will not have access to further IMF loans, will
\nnot be eligible for loan rescheduling under the Paris Club
\nmechanism, and will have to begin to pay off its foreign debt.<\/p>\n
Instead of the Letter of Intent (LOI) under the IMF program,
\nthe government is preparing an economic recovery program, which
\nis to be announced soon. The extent of the IMF \"monitoring\"
\ncomprises a review or dialog on Indonesia's economic progress and
\npolicies, which is usually conducted every six months. This is
\nactually only once more than the normal annual consultations
\nconducted for all members of the IMF.<\/p>\n
The economic assumptions of the proposed 2004 budget are
\nrelatively realistic and acceptable, although one may question
\nwhether the growth rate can reach 4.5 percent and whether the
\ninflation rate of 7 percent is too high. However, what is of
\ninterest in the budget announcement and planned program is life
\nafter the IMF in Indonesia. Whilst there are many issues to be
\ndiscussed in the life-after-the-IMF scenario, let me focus on two
\nmajor ones.<\/p>\n
First is the \"cost\" of life after the IMF, which is
\nimmediately evident from the tight budget for 2004. There is
\nstill a deficit of 1.2 percent of gross domestic product, but
\nthis is lower than last year. However, due to the need for fiscal
\nconsolidation and raising revenues from income taxes (in the face
\nof falling oil revenues), and minimal increases in the
\ndevelopment budget, there is definitely no hope of fiscal
\nstimulus from the budget.<\/p>\n
The financing gap that needs to be financed in 2004 is much
\nhigher despite the lower deficit because of the need to service
\ndomestic, and more importantly foreign debt since there is no
\nmore rescheduling of debt payments.<\/p>\n
It will also require hard work and strong discipline to
\nincrease income tax revenues to a level that ups the tax to gross
\ndomestic product ratio from 13.1 percent to 13.5 percent, better
\nmanage spending, and to meet the financing gap, all through
\nprivatization, the sale of assets under the Indonesian Bank
\nRestructuring Agency and the issuance of bonds.<\/p>\n
The only sure source of financing is from available funds in
\nthe government account. But, while these funds are important for
\nthe 2004 budget, they also use up available reserves. It is
\nquestionable how much more is available in the coming years.<\/p>\n
Given this scenario, the role of government, central and
\nlocal, in providing stimulus for the economy and basic service
\nand infrastructure development, has become even more constrained
\nthan before.<\/p>\n
If the government is to achieve 4.5 percent growth, then the
\nsource of growth and stimulus must come from the private sector
\nand, in particular, from a significant recovery in investment.
\nThe recent bombing of the JW Marriott Hotel has, of course, not
\nhelped investor confidence.<\/p>\n
Furthermore, the election processes which will preoccupy us
\nfor the whole of next year also mean that domestic and foreign
\ninvestors will adopt a wait-and-see attitude.<\/p>\n
What can be done to improve business confidence? Not much in
\nthe short term, but there is an opportunity for the government to
\npropose and implement a credible program in the post-IMF
\nscenario.<\/p>\n
This brings us to the second issue, the so-called Indonesian
\neconomic recovery program that the government is preparing. The
\nonus of the program is now with the government and with each
\ndepartment responsible for proposing programs, identifying the
\naction plan and implementing them. A big step ahead in this
\nregard would be to have the program of each department made
\ntransparent and accessible to all stakeholders.<\/p>\n
This would show which government ministries were delivering
\ncredible programs, clear action plans, and whether they actually
\nimplement it. The responsibility and accountability will rest
\nwith the respective parts of the government; one cannot put the
\nblame on the IMF anymore.<\/p>\n
However, for the program to be credible, here are a few
\ncaveats and thoughts. On content, it is to be hoped that the
\nprogram will have clear targets and deadlines, as well as specify
\nhow the targets are to be achieved.<\/p>\n
Given the institutional and capacity constraints on the
\ngovernment, it would also be more realistic to not provide long
\nwish lists, but instead to prioritize and focus on a few major
\nissues that can be achieved in the short term.<\/p>\n
The other targets can be mentioned as longer term targets.
\nBy now, expectations are low and realistically speaking, what is
\nexpected is that there is a prioritization of a few important
\ntargets, accompanied by clear action plans, which are
\nsubsequently implemented and delivered by the deadlines. If this
\ncould be achieved, it would provide a long awaited and important
\nsignal for all stakeholders.<\/p>\n
The credibility of the program also rests on a credible
\nmonitoring process. There are a few possibilities which can be
\nexplored. First is for the government to initiate an independent
\nmonitoring body together with the stakeholders (civil society,
\nprivate sector etc.).<\/p>\n
Second, the stakeholders could also initiate their own
\nmonitoring mechanism, although it would be difficult to have
\neffective monitoring without government cooperation and readiness
\nto supply information. Finally whatever the modus of national
\nmonitoring chosen, the possibility of supplementing it by making
\npublic the outcomes of the IMF reviews conducted as part of the
\nregular and PPM consultations should also be considered.<\/p>",
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