Buoyed by IMF praise<\/p>\n
The government, still rejoicing over the exceedingly positive
\nmarket reception of its first global bond offering in over seven
\nyears, got another dose of high praise from the International
\nMonetary Fund, which completed last week its review of
\nIndonesia's economic policies and performance under its
\nsurveillance mechanism (Article IV).<\/p>\n
The annual surveillance review, which was conducted in
\nconjunction with the first policy discussion under the IMF Post-
\nProgram Monitoring arrangement Indonesia entered into in January
\nafter the end of the IMF extended facility in December, was full
\nof commendations for the government for its policy-reform
\nperformance.<\/p>\n
The IMF cited significant progress in the implementation of
\nreform measures, as stipulated in the September 2003 White Paper,
\nand pointed to the positive economic indicators in key areas such
\nas low inflation, a steady decline in interest rate, a stable
\nrupiah exchange rate and the increase in international reserves.<\/p>\n
It praised the government's determination to continue its
\nfiscal consolidation to reduce the budget deficit to as low as
\n1.3 percent of gross domestic product this year from 2.1 percent
\nlast year. So buoyed was the IMF team with the positive economic
\ntrends that it projected that economic growth this year would hit
\n4.8 percent, up from an annual average of around 4 percent in the
\n2001-2003 period.<\/p>\n
Different from past policy and economic reviews between 1998
\nand 2003 when the country was still under the IMF extended
\nfacility arrangement (bailout program), the latest review and
\npolicy discussions were not legally binding because the
\nassessment was not tied to loan disbursements from the IMF.<\/p>\n
However, the findings and recommendations resulting from the
\npolicy review and discussions with the IMF remain greatly
\ninfluential in shaping market perception and credibility of the
\ngovernment and so too, consequently, Indonesia's sovereign risks
\nand economic prospects.<\/p>\n
It is therefore well-advised for the government not to be
\nlulled into complacency with a lackadaisical attitude, assuming
\nthat the economic crisis is now all over and the country is in
\nfor some robust growth, especially because the IMF qualified its
\ncommendations with a series of policy recommendations.<\/p>\n
Take for example, the warning offered by the IMF team at a
\nmeeting with the central bank's board of directors last Thursday.
\nThe IMF expressed great concern that several banks had been
\nengaged in unsound lending sprees that could threaten the
\nviability of the whole industry, which is still fragile. The IMF
\nteam also urged the central bank to improve its banking
\nsupervision capability and effectiveness and to be more forceful
\nin enforcing its directives and rules on banks.<\/p>\n
Though many might be surprised by the IMF's strong advice
\nagainst overly aggressive lending, but it is because total loan
\ngrowth last year remained virtually stagnant vis a vis the 2002
\nexpansion rate of around 19 percent. Additionally, the loan-to-
\ndeposit-ratio within the industry was still very low at about 50
\npercent, so an early warning is very important to prevent another
\ndebacle in the banking industry.<\/p>\n
It is likely that the IMF warning was directed especially at
\nthe \"go-go\" consumer lending by several banks. The fierce
\ncompetition in and the expansion of consumer loans, which
\nexceeded 66 percent in 2000 and 45 percent in 2001 and remained
\ninordinately high at 37 percent in 2002 and 32 percent in 2003,
\ncould indeed threaten another upsurge in non-performing loans
\nwithin the financial services industry.<\/p>\n
Other policy recommendations, as stipulated in the 12-
\nparagraph press statement issued at the end of the IMF review on
\nFriday was an urge for the government to tackle weaknesses in
\ntaxation and customs service regulations, enhancing labor market
\nflexibility and addressing problems with property rights and
\ncontract enforcement. Without significant and quick progress in
\nthese reform measures, Indonesia's growth rate will remain lower
\nthan that of most other countries in Asia.<\/p>\n
The press release devoted two paragraphs to policy
\nrecommendations on taxation and customs services. Progress in
\nthese two areas has been seen by most analysts and businesspeople
\nas far too slow and way short of what is needed to reduce the
\ncosts of doing business and to stimulate investment in the
\ncountry.<\/p>\n
The amendment of the tax laws are also way behind schedule.
\nMost businesspeople and analysts are worried that the draft
\namendments prepared by the government are far from adequate to
\nremove uncertainty and minimize corruption within the tax
\ndepartment.<\/p>\n
The IMF team explicitly cited weaknesses in arbitrary tax
\nassessments, inefficiencies in the refund system for the value
\nadded tax and income tax and burdensome customs procedures as
\nmajor barriers to investment.<\/p>\n
Failure to make significant progress in the reform of tax and
\ncustoms service and labor rules could further postpone the return
\nof foreign direct investors, even if the upcoming elections go
\noff without a hitch this year.<\/p>\n
______<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/buoyed-by-imf-praise-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }