Here they come<\/p>\n
The long-awaited review team from the International Monetary
\nFund (IMF) arrived here on Tuesday to conduct a two-week
\ncomprehensive evaluation of Indonesia's economic reforms, which
\nwere stipulated in the government's letter of intent (LoI) to the
\nmultilateral agency last September.<\/p>\n
The team's arrival itself, which had been delayed since
\nDecember, should be good news to the market, amid the escalating
\npolitical uncertainty and weakening rupiah. After all, the IMF
\nwould not have sent its seven-member review team from Washington
\nif both sides had not bridged their principal differences over
\nthe implementation of the September reform package.<\/p>\n
Indonesian officials claim the government has completed all
\nreforms as agreed last year with the IMF. These include the
\nissues responsible for the postponement of the disbursement of
\nIMF's third US$400 million tranche of the $5 billion bailout
\nfund.<\/p>\n
The House of Representatives has approved the sales of two
\nnationalized banks, the government has issued a complete ban on
\nregional administrations to make new borrowings, and put in place
\na better oversight mechanism for the powerful Indonesian Bank
\nRestructuring Agency (IBRA).<\/p>\n
The controversy over the government-proposed amendments of the
\n1999 Central Bank Law has also been resolved. Chief economics
\nminister Rizal Ramli said the independent panel of Indonesian and
\nforeign experts, who were assigned by the IMF to review the
\nproposed amendments, shared the government's view on the need to
\nimprove accountability of the central bank's board of governors.
\nBoth parties also agree that the central bank's political
\nindependence should be maintained.<\/p>\n
If everything goes as scheduled, the government will be able
\nto send a new LoI to the IMF executive board in Washington later
\nthis month or in early May. The board will take about two weeks
\nto approve the document and release the $400 million tranche held
\nup since December.<\/p>\n
A new IMF seal of endorsement of Indonesia's economic reforms
\nand the injection of $400 million into the country's
\ninternational reserves are expected to improve market sentiment
\ntoward the economy, which has virtually been in limbo since early
\nthis year, and the rupiah exchange rate, which has weakened to a
\n30-month low.<\/p>\n
Another great significance of a new agreement with the IMF
\nwill be the confirmation of the government's debt rescheduling
\npact with the Paris Club of sovereign creditors, which was
\nconcluded last year for a total of $2.8 billion in debt
\nprincipals. Without IMF's endorsement, the debt rescheduling deal
\nwould be canceled, and the government's foreign debt service
\nburden for the current fiscal year would then increase by $2.8
\nbillion to $10.2 billion, threatening the government with a
\npayment default.<\/p>\n
Even without such additional debt service burden, the state
\nbudget is already threatened by a ballooning deficit which is due
\nto the errant assumptions on interest rates, the rupiah exchange
\nrate, subsidy spending as well as revenue targets. Most analysts
\nhave estimated that even with the debt rescheduling deal
\nremaining effective, the budget deficit could balloon to as high
\nas 5 percent of gross domestic product (GDP), or Rp 70 trillion,
\nfrom Rp 52.5 trillion or 3.5 percent of GDP, as originally
\nplanned.<\/p>\n
Hopefully, with a new agreement with the IMF, the
\nsubsequently positive market sentiment toward the economy would
\nbe able to correct or at least reduce the deviations in the
\nassumptions of the state budget, thereby preventing an
\nunmanageable, explosive deficit.<\/p>\n
However, this potential gain could still be diluted if the
\nbickering among the political elite and the hostility between
\nPresident Abdurrahman Wahid and the House worsened. The House's
\nstance (to be made known on April 30) on Abdurrahman's recent
\nresponse to its first memorandum of censure, will determine the
\neffectiveness of a new LoI with the IMF in improving market
\nconfidence in the economy.<\/p>\n
If anything, whether the Abdurrahman government survives or is
\nreplaced this year, an IMF-endorsed, hence internationally-
\nsupervised, reform package could still serve as an automatic
\npilot for the country's economic management amid the political
\nturbulence.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/here-they-come-1447899208",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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