Dropping IMF would weaken RI's credibility: Economist<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
Indonesia is not yet ready to terminate the current role of
\nthe International Monetary Fund (IMF) as such a move would risk
\nthe country losing crucial foreign financing sources and damage
\ninvestor confidence, say experts.<\/p>\n
They also argue that the IMF's approval for the government's
\nongoing economic reform program is still needed in order to
\nmaintain its credibility.<\/p>\n
Questionable credibility would put pressure on the country's
\ncredit rating, thus further weakening Indonesia's competitiveness
\nin attracting much-needed investment, economists Muhammad Ikhsan
\nand Anton Gunawan told The Jakarta Post on Thursday.<\/p>\n
\"A drop in the country's rating would make the cost of capital
\nhigher, making Indonesia less attractive to invest in compared to
\nother countries,\" said Muhammad, the director of the Institute
\nfor Economic and Social Research at the University of Indonesia's
\nSchool of Economics.<\/p>\n
Even with the IMF breathing down its neck, the government had
\nbeen struggling to bring about the reforms necessary to create a
\nconducive investment climate here.<\/p>\n
Anton, a Citibank economist, also questioned the government's
\nability to discipline itself without having some outside party
\nwatching over it.<\/p>\n
\"In 2004, we're going to have an election, which makes it even
\nharder for the government to act as everything will become highly
\npoliticized, coupled with the fact that IBRA (Indonesian Bank
\nRestructuring Agency) will no longer be around.<\/p>\n
\"So, given all this, can the government maintain its
\ndiscipline? Even more importantly, can the government convince
\nothers that it can maintain its discipline?,\" Anton asked.<\/p>\n
Anton and Ikhsan also said that this credibility issue would
\ncome on top of a more concrete problem should the IMF no longer
\nhave a say, namely, a loss of potential financing sources for
\nboth the budget and balance of payments.<\/p>\n
Anton predicted that without the IMF, in 2004 alone Indonesia
\nwould lose debt relief facilities amounting to around US$3
\nbillion, which would otherwise be available from the Paris Club
\nif the IMF's role were maintained.<\/p>\n
Although domestic sources could still cover the payments, such
\na huge amount would put pressure on the rupiah. He said funding
\noptions could come from the investment funds account (RDI), and
\nwindfall profits gained from the difference in oil revenues
\nbetween the actual prices and what had been targeted in the state
\nbudget.<\/p>\n
\"With the expected slow growth in exports, such capital
\noutflows would rapidly increase the demand for dollars, which
\nwould put pressure on the rupiah,\" said Ikhsan, adding that this
\nwould put the country's hard gained macroeconomic stability at
\nrisk.<\/p>\n
The two economists were asked to comment on Wednesday's
\nstatement by a group of 35 economists, which said that Indonesia
\nwould be better off without the IMF.<\/p>\n
Rizal Ramli, a former coordinating minister and leader of the
\ngroup, said that the economy would fare better without the
\npresence of the IMF given the huge financial resources that had
\nyet to be fully maximized. Not only that, the group of 35 claimed
\nthat certain IMF programs, notably divestment and privatization,
\nhad pushed the economy deeper into crisis.<\/p>\n
The IMF's current economic reform program will end later this
\nyear. Signed in 1999, the agreement allows the country to access
\naround US$5 billion in loans in return for the meeting of a
\nnumber of key economic reform targets. The government has yet to
\ndecide whether to terminate or extend the program.<\/p>\n
But the government is planning to set up a special team that
\nwill be charged with designing appropriate policies and
\ndiagnosing the consequences should the country graduate from the
\nIMF's tutelage.<\/p>\n
However, given the government's poor record in fulfilling its
\nown pledges of reform \"when nobody was looking\", Anton was of the
\nopinion that the role of the IMF should be extended for around a
\nyear in order to give the government a cooling-out period before
\ncompletely parting ways with the Fund.<\/p>\n
\"The way I see it, splitting with the IMF this year is
\npremature. The government still needs a transition period of
\nbetween half a year to a year before it can graduate from the
\nIMF,\" Anton said.<\/p>",
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