Curing nation's paranoia toward IMF monitoring<\/p>\n
Julia Puspadewi Tijaja, Centre for Strategic and International Studies
\n(CSIS), Jakarta<\/p>\n
Despite some opposition from the chief of the National
\nDeveloping Planning Board (Bappenas) Kwik Kian Gie and former
\nchief economic minister Rizal Ramli, our government has come up
\nwith the decision to end the IMF's Extended Fund Facilities
\nprogram with the Post Program Monitoring (PPM) arrangement by end
\nof this year.<\/p>\n
The nation's previously controversial relationship with the
\nIMF has resulted in a certain degree of hostility toward having
\nthe IMF monitoring under the PPM arrangement.<\/p>\n
IMF has conveniently been made the main scapegoat of our slow
\nand staggering recovery from the 1997 economic crisis in
\ncomparison to other Asian countries. Recommendations made by the
\nIMF were seen to have led Indonesia into a deeper crisis -- a
\nnaive oversimplification. Yet countries receiving loans from
\ninternational financial institutions are those already facing an
\nunfavorable economic situation, thus it is hard to know whether
\nIndonesia would be better off without the Fund, and worse still
\nto accuse the IMF program of being the cause of the crisis.<\/p>\n
Strong criticism was made of the Fund's generic formulation of
\ntight fiscal and monetary policy in times of crisis. While the
\nlatter was justified to put a stop on domestic currency
\ndepreciation, the former received more criticism as being
\ninsensitive toward the poor. However, the need to tighten our
\nfiscal policy mainly arises from our worrying level of fiscal
\ndeficit.<\/p>\n
Reckless fiscal expansion in the form of project funding often
\nhas questionable effective surveillance and accountability at
\ntimes of political and economic instability. Misuse of such
\nfunding will lead the country into higher deficit, without any
\nstimulative result in our economy. Despite all these, opponents
\nof international body monitoring tried to give their
\njustification for carrying the nation's economic reform without
\nPPM.<\/p>\n
Opponents of PPM were optimistic about the soundness of the
\nIndonesian economy. Though our macroeconomic indicators have
\nindicated noteworthy improvement, our real sector has yet to be
\nstimulated. Without serious structural adjustment and financial
\nreforms, we should anticipate a reverse flow of our mainly short
\nterm capital inflow when there is a sudden drop in market
\nconfidence.<\/p>\n
In a country like Indonesia where market sentiment is highly
\nsensitive to both economic and noneconomic factors, convincing
\nthe market of the government's economic reform commitment is an
\nenormously challenging task. Moreover, in the face of the
\nupcoming election in 2004, there is a stronger need to secure
\nmarket confidence due to the uncertainties during the highly
\nvolatile period of political transition.<\/p>\n
The presence of an internationally recognized monitoring body
\nlike the IMF would help secure market confidence. It serves as a
\nstrong pillar that signals the government's seriousness at
\npursuing realistic economic reform, mitigating market suspicion
\nthat the economy will be ill-maintained during the battle for
\npolitical power. Thus, this will increase the immunity of the
\nIndonesian economy to noneconomic domestic shocks.<\/p>\n
Another advantage of having the IMF as our monitoring body is
\nthat we are able to pay our debt to the Fund in installments up
\nuntil 2010. Despite the fact that our present foreign reserve
\nabsolute level of US$34 billion (inclusive of the $9.2 billion
\nowed to the IMF) is strong enough to repay our debts in a lump
\nsum, we should not be too reckless. There is evidence that the
\nmarket reacts asymmetrically more to negative perception, like in
\nthe case when there is a sudden drop in our foreign reserves.<\/p>\n
Without the PPM arrangement, we have to pay $5.9 billion in a
\nlump sum to bring our debts down to the quota level of $2.8
\nbillion. It is extremely difficult to maintain market confidence
\nwhen there is substantial fall in the level of our foreign
\nreserves. Indeed, the interest we bear is a worthy cost to reduce
\nthe risk of another herding capital outflow that we cannot
\nafford.<\/p>\n
Hence, the option of having an international monitoring body
\nshould not be confronted with \"nationalistic\" hostility and
\nunnecessary paranoia. Under the PPM arrangement, the IMF could
\nnot restrict our economic policy, since their approval is not
\nneeded in the policy-making process. It is their evaluation that
\nwill be judged by the market. As long as the government is
\ncarrying out policies favorable to market sentiments, there is no
\nreason to worry about the IMF's presence under the PPM
\narrangement.<\/p>\n
In this highly mobile world, staying under an internationally
\nrecognized monitoring body shows that the government is careful,
\nacting in the best interests of our investors. It helps to
\npromote a conducive atmosphere for investment, which is
\ndesperately needed to solve our problem of unemployment.<\/p>\n
Economic actors will definitely have more confidence in a
\n\"patient\" accepting licensed doctors' monitoring and regular
\nmedical consultation by being under PPM.<\/p>\n
It is now time to prove the government's credibility in
\nundertaking economic reforms with self-drawn Letter of Intents
\nwhich are accountable to the nation.<\/p>\n
The writer is also currently studying for an Economics and
\nPolitics degree at Queen Mary, University of London, United
\nKingdom<\/p>",
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