IMF's rebuff a warning to Indonesian govt<\/p>\n
SINGAPORE: Support for the Indonesian government has reached a
\nnew low, as demonstrated by the International Monetary Fund's
\n(IMF) decision to delay disbursement from its US$5-billion (S$9-
\nbillion) loan program, pending economic reforms.<\/p>\n
It refused to release a US$400 million loan tranche until the
\nIndonesian parliament approves revisions to the government's
\nBudget. Adding salt to the wound, the Japan Bank for
\nInternational Cooperation also canceled a 35.9 billion-yen (S$530
\nmillion) loan. It had forwarded to Indonesia a staggering 7.7
\ntrillion yen -- half of which is currently outstanding -- in the
\nlast 30 years.<\/p>\n
Likewise, the World Bank canceled its US$300 million loan
\nearlier this year, citing poor program implementation. Clearly,
\nthe collective lack of confidence in President Abdurrahman
\nWahid's government leaves the economy dangerously exposed to
\nanother meltdown.<\/p>\n
Still, IMF's desire to avoid getting entangled in the
\ncountry's turbulent political situation is understandable.
\nApproving more loans to the country in such circumstances poses
\nunacceptable risks to IMF members, whose money is at stake, and
\nits reputation.<\/p>\n
The IMF listed Indonesia's problems, such as rampant
\ncorruption, a growing budget deficit, slow asset sales, legal
\nuncertainty and poor implementation of previously pledged
\nreforms. Its approval is crucial for the implementation of the
\nloans, grants and debt-rescheduling promised by other
\ninternational lending agencies which usually follow the IMF's
\nlead.<\/p>\n
Without IMF support, Indonesia faces a vicious cycle of
\neconomic and political instability. The economy is under pressure
\nbecause of political instability, which contributes to low
\ninvestor confidence. There must be a clean break from this cycle
\nif the Indonesian economy is to recover. The IMF's decision has
\nhurt the rupiah, which fell to below 12,300 late last week.<\/p>\n
As the World Bank warned recently, Indonesia's budget deficit
\ncould exceed 6 percent of the gross domestic product. Towards the
\nend of March, the deficit was Rp 53 trillion (S$8.1 billion) and,
\nin April, over Rp 70 trillion. Much of this comes from the
\ncurrency's rapid depreciation to way below the Rp 7,800 per
\ndollar level set in the budget, and from the government's
\nobligation to pay the cost of the bank recapitalization program,
\nworth Rp 650 trillion.<\/p>\n
Speculators are not behind the rupiah's latest nosedive. On
\nthe contrary, there is heavy demand for US dollars by
\ncorporations with debt payments coming due in the next few
\nmonths. They are buying dollars now rather than wait as they fear
\nthe rupiah could fall further.<\/p>\n
Also, interest rates could spike if the central bank defends
\nthe rupiah, which would blow the deficit wide open. The rupiah's
\ncollapse comes from a lack of market confidence because of
\nendless bickering in the political leadership.<\/p>\n
Fears continue to mount that supporters of President
\nAbdurrahman may stage a show of force with Parliament reconvening
\nyesterday to debate a second censure motion against him. He is
\nsimply not willing to surrender, and neither are the opposing
\ncamps willing to give in.<\/p>\n
But even if President Abdurrahman is ousted, his successor is
\nunlikely to enjoy an easy ride, for Indonesia is now in a
\npermanent state of political uncertainty. Even if Vice-President
\nMegawati Soekarnoputri takes over as President, there is no
\nguarantee the crisis is solved. The country needs many, many
\nyears to recover from the turmoil caused by its political elite.<\/p>\n
-- The Straits Times\/Asia News Network<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/imfs-rebuff-a-warning-to-indonesian-govt-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }