Mending ties with the IMF<\/p>\n
High expectations of a new reform agreement with the
\nInternational Monetary Fund next week will not likely be dashed
\nas they were in April and mid-July. Judging from the smooth
\nnegotiations since early this week and the good rapport between
\nthe new economic team and the IMF review mission, one can say
\nthat a new letter of intent (LoI) is already in the bag. The
\nfinal draft will most likely be ready for IMF management next
\nweek. The IMF executive board will approve the accord early next
\nmonth, right before the Paris Club of sovereign creditors meets
\nto decide on the effectiveness of a rescheduling deal for US$2.8
\nbillion of Indonesia's official debts.<\/p>\n
The market seems to be comfortable that an internationally
\nendorsed reform program is in the pipeline, as evidenced by the
\nsustained momentum of optimism about a more stable environment
\nfor the economic stabilization process.<\/p>\n
True, market confidence, as reflected in the rupiah's
\nappreciation, should be attributed primarily to the cascading
\nimpact of the end of former president Abdurrahman Wahid's erratic
\nleadership and ineffective government late last month, President
\nMegawati Soekarnoputri's selection of the right people for her
\nCabinet, strong support of her coalition government and the right
\nscale of priorities she set for her Cabinet's working programs.<\/p>\n
Put another way, the market's bullishness has so far been
\nfueled mainly by the public's perception of the Megawati
\ngovernment's capability to lead the nation out of its present
\nmultidimensional crisis. Even good policies could fail if doubts
\nabout the quality of the public sector management undermine
\nsocial support. Hence, expectations generated by perceptions of
\ngovernment capability are one of the keys to successful reforms.<\/p>\n
A new agreement with the IMF will further strengthen market
\nconfidence as it will greatly help smooth Indonesian relations
\nwith its creditors in the Paris Club and the Consultative Group
\non Indonesia (CGI), scheduled to meet in October. One should not
\ntake lightly the good understanding shown on the part of foreign
\ncreditors, given the government's foreign debts of about $65
\nbillion and corporate foreign debts of almost $70 billion.<\/p>\n
A new reform accord with the IMF will therefore mean much more
\nthan access to the disbursement of the next $400 million tranche
\nfrom the IMF extended facility. More importantly, restoration of
\nan IMF-endorsed program, which was delayed in December, will
\ndetermine the degree of Indonesia's country risk.<\/p>\n
But then, however essential the ability to formulate good
\npolicies to be stipulated in the new accord and however important
\nthe market's perception of the government's capability, policies
\nare only promises that have yet to be fulfilled.<\/p>\n
In this context, the Megawati government is fortunate that it
\npossessed right from the outset the most important ingredients to
\nsuccessful reforms: Strong support that will facilitate political
\nfeasibility of painful measures and perceived capability
\n(credibility).<\/p>\n
The reform programs to be stipulated in the new LoI to the IMF
\nwill not be less challenging but will instead be more daunting
\ndue to the damages left behind by the previous administration.
\nThe core measures will obviously remain centered on fiscal
\nsustainability and structural reforms in the corporate, banking,
\npublic administration and judicial systems.<\/p>\n
Therefore, the hardest part of the job is for the government
\nto demonstrate its real implementation capability in delivering
\non the promises to be stated in the LoI.<\/p>\n
Learning from the bitter experiences and mistakes of the
\nprevious government, the Megawati administration should develop
\nthe kind of capability that reflects three fundamentals in the
\nstrategic interactions between people and government officials:
\naccountability, transparency and predictability.<\/p>\n
Accountability means establishing criteria to measure the
\nperformance of officials as well as being an oversight mechanism
\nto ensure that standards are met. Transparency requires clarity
\nabout rules, regulations and decisions in order to maintain
\npolitical and procedural predictability. On top of all that,
\ninstitutions must be designed to prevent politicians from using
\ntheir authority to personalize both the material and political
\nbenefits that can be derived from their access to the rents
\ncreated by state intervention in the economy.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/mending-ties-with-the-imf-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}