Mending relations with the IMF<\/p>\n
A high-level mission of the International Monetary Fund (IMF)
\nis expected here on Thursday to review Indonesia's reform
\nprograms in preparation for a new letter of intent (LoI) to guide
\nthe country's economic-crisis management.<\/p>\n
The previous IMF review mission, which arrived in mid-April,
\nreturned to Washington empty-handed. However, the conditions now
\nseem more favorable for the fund and the government to wrap up,
\nwithin the next two weeks, a new reform package for
\nrecommendation to the IMF executive board in Washington. And if
\neverything goes well, the board will endorse the package and
\nrelease its third US$400 million loan tranche, of the $5 billion
\nbailout fund, held up since December 2000. The process is
\nexpected to be completed some time in August, by which time a new
\ngovernment might have emerged from the special session of the
\nPeople's Consultative Assembly.<\/p>\n
There are at least three major factors that have contributed
\nto such high optimism. The first factor is that most of the
\nrequirements imposed by the IMF for its extended facility program
\nhave, by and large, been fulfilled. The sales of Bank Central
\nAsia and Bank Niaga are under way, the 2001 state budget has been
\nrevised, the fiscal authority of regional administrations has
\nbeen realigned and the plan to issue dollar bonds secured with
\nthe natural gas sales revenue has been scrapped.<\/p>\n
Most importantly, the government has compromised on its stance
\nwith regards to the planned amendment of the central bank law and
\nseems to have agreed with the House of Representatives to extend
\ndeliberation on the law changes.<\/p>\n
The second factor is the replacement last month of Rizal Ramli
\nwith Burhanuddin Abdullah as chief economics minister. This move
\nis expected to improve the often-prickly IMF-government relations
\nas unlike Rizal (now the finance minister), a staunch critic of
\nthe IMF who often took a confrontational and sometimes
\nbelligerent stance against the multilateral agency, Burhanuddin
\nis more cooperative.<\/p>\n
As a former deputy governor of Bank Indonesia and a senior
\neconomist who had a three-year stint at the IMF Headquarters in
\nWashington in the early 1990s, Burhanuddin is fully aware of the
\nIMF's role as an opinion leader for international creditors and
\ninvestors.<\/p>\n
He realizes that a good rapport with the fund means much more
\nthan access to its financial resources. Even more important is
\nthe international endorsement of Indonesia's economic reforms
\nthat will result from an agreement with the IMF.<\/p>\n
The third factor is IMF managing director Horst Kohler's
\nstreamlining of the conditionality of the fund's financial
\nresources. This will help expedite a new agreement with the fund.
\nRealizing that borrowing governments have often been irritated
\nand frustrated by what they see as excessive intrusion into their
\nnational decision-making authority by the IMF, Kohler now wants
\nthe IMF to focus its conditions on reforms critical to
\nmacroeconomic stability and be more cooperative, rather than
\ndictatorial, with borrowers.<\/p>\n
Indonesia's previous LoIs to the IMF, in which the government
\nset out its overall policies, had been quite broad. For example,
\nthe latest LoI signed last September listed 67 points complete
\nwith matrixes and boxes depicting scheduled executions that went
\nbeyond macroeconomics.<\/p>\n
Even though the elaborate conditions had partly been prompted
\nby the capriciousness of the Indonesian government, which often
\nbacktracked on its commitments, such extensive conditionality is
\nnow seen as no longer conducive for maintaining good relations
\nbetween the IMF and its borrowing members. Such detailed
\nrequirements do not provide governments with adequate leeway to
\nadjust reforms to country-specific social, economic and political
\ncircumstances.<\/p>\n
The government, however, should realize that even though the
\nnext agreement with the IMF would focus only on macroeconomic
\nstability, the reform agenda that must be implemented to achieve
\na sustainable high growth would by no means be easier or fewer.<\/p>\n
The reform programs ahead will instead remain greatly
\nchallenging. Without significant progress in structural reforms
\nin the corporate, banking, public administration and judicial
\nsystems, the ailing economy will never be restored to sound,
\nrobust growth.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/mending-relations-with-the-imf-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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