The IMF factor<\/p>\n
There would appear to be no benefit at all to Indonesia if the
\ncountry were to opt to completely disengage itself from any
\narrangements with the International Monetary Fund (IMF) later
\nthis year, as recommended last year by the People's Consultative
\nAssembly, the nation's top law-making body.<\/p>\n
The absence of any arrangement with the IMF after expiry of
\nthe current IMF facility in December may, instead, expose the
\ncountry to greater risks of fiscal and external financing gaps
\nand an erosion of market confidence in the country's economic
\nreforms, especially given the likelihood of political turbulence
\nin 2004, an election year.<\/p>\n
Market acceptability is the key, according to Tarin
\nNiimmahaemi, former finance minister of Thailand, which
\nsuccessfully completed its IMF program in 2000, only three years
\nafter the outbreak of its economic crisis.<\/p>\n
So crucial is the factor of market confidence that Thailand
\ndid not abruptly end its arrangement with the IMF but opted for a
\ngradual disengagement by first making a precautionary arrangement
\nand then entering the IMF Post-Program Monitoring Scheme. Only
\nafter Thailand was absolutely sure about the strength of market
\nconfidence in its economy did the country completely end its
\nspecial arrangement with the multilateral agency.<\/p>\n
South Korea, which successfully graduated from the IMF program
\nearlier in 1999, or only two years after the emergence of its
\ncrisis, followed a similar path.<\/p>\n
What, then, is Indonesia's chance of abruptly exiting the IMF
\nprogram? Certainly not as great as Thailand's and Korea's success
\nstories. Until about two years ago, Indonesia was notorious for
\nnot only delaying its reforms but often backtracking on policy
\ncommitments. No wonder then, its economy has remained fragile
\neven after almost six years of languishing in the IMF \"emergency
\nroom.\"<\/p>\n
Blaming the IMF for most of the failings in the handling of
\nIndonesia's economic crisis and preaching that economic
\nmanagement would be much better without any special assistance
\nfrom the IMF is simply an act of self-delusion. Indonesia's
\nrecord on policy performance is yet too dismal to convince the
\nmarket -- investors and creditors -- that it would consistently
\nimplement its reform commitments without independent
\ninternational oversight, such as that provided by the IMF.<\/p>\n
Indonesians who are staunch critics of the IMF may not realize
\nthat whatever the IMF's shortcomings may be, the market still
\ntrusts this institution more than the Indonesian government,
\nwhich, infamously, is known as one of the most corrupt in the
\nworld. The IMF remains an opinion leader for creditors and
\ninvestors. This is the market perception, however painful it may
\nappear to the country's political leaders. We cannot simply
\ndisregard it. Market confidence is what has been largely
\nresponsible for Indonesia's strengthening macroeconomic stability
\nsince last year.<\/p>\n
Minister of Finance Boediono is fully aware of the great risk
\ninherent in an erosion of market confidence, as can be concluded
\nfrom his repeated warnings of financing and credibility gaps if
\ngovernment reform strategy, after the end of the IMF program, did
\nnot create confidence among creditors, investors or the market in
\ngeneral.<\/p>\n
Similar warnings were conveyed by the IMF's Jack Boorman,
\nformer deputy governor of Australia's Federal Reserve Bank
\nStephen Grenville and World Bank country director for Indonesia
\nAndrew Steer, who discussed the IMF's role at a seminar here on
\nFriday.<\/p>\n
They asserted essentially that the IMF would not mind whatever
\nform of relationships the Indonesian government might choose
\nafter the end of the current IMF program later this year, as long
\nas the market believed in the policy commitment mechanism
\nIndonesia would implement.<\/p>\n
Given the continuing fragile economic situation, and in view
\nof the political turbulence likely in 2004 and that credibility
\nin the government's policy-making and executing capability has
\nyet to be tested, the international market would be much more
\ncomfortable if Indonesia's economic management were to remain
\nunder independent international supervision, at least until the
\nelection of a new government later next year.<\/p>\n
This has nothing to do with either national dignity or
\nnationalism. In reality, we would be acting blatantly against our
\nown national interest if we unnecessarily took the risk of losing
\nmarket confidence, thereby forfeiting the momentum of the
\nsignificant progress we have painstakingly made thus far, and
\nfurther neglecting millions of unschooled children and people
\nmired in unemployment and abject poverty.<\/p>\n
Entirely disengaging itself from the IMF later this year, as
\nRizal Ramli and State Minister of Development Planning Kwik Kian
\nGie and a number of other economists and politicians have been
\ndemanding, would unnecessarily expose the country to great risks
\nof damaged market confidence, as the government would have to
\nrepay completely its debts to the IMF. This would mean a sudden
\ncut of more than US$6 billion in its international reserves, not
\nto mention the loss of Indonesia's debt rescheduling facility
\nfrom the Paris Club of sovereign creditors and a consequent steep
\nrise in its foreign debt service burden.<\/p>\n
However, gradual disengagement from the IMF, as Thailand and
\nSouth Korea have done, would be far less likely to disrupt
\nbudding market confidence. A precautionary arrangement, or post-
\nprogram monitoring, would, instead, reassure the market that
\nthere was a well-equipped, highly capable fire brigade around
\nshould a fire break out.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-imf-factor-1447899208",
"image": ""
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"sponsor": "Okusi Associates",
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