The IMF support<\/p>\n
Much more important than simply being additional support for
\nthe balance of payments and strengthening foreign reserves, the
\nInternational Monetary Fund's approval last week of the third
\ntranche disbursement of its US$5 billion bailout fund for
\nIndonesia serves as a new building block for the process of
\nrestoring market confidence in the country's economic-crisis
\nmanagement.<\/p>\n
The decision by the IMF executive board is even more pivotal
\namid the heightened uncertainty about security -- one of the
\nfundamental preconditions for an economy to function normally --,
\nafter the bomb blast last Wednesday at the Jakarta Stock Exchange
\nbuilding that killed at least 11 people and destroyed or damaged
\nmore than 180 cars.<\/p>\n
The timing of the support could not be better as the
\nIndonesian government is encountering strong international
\npressure to immediately disarm and disband militias and restore
\norder in Atambua, East Nusa Tenggara, following the recent
\nkilling of three United Nations relief workers in the western
\npart of Timor island.<\/p>\n
The disbursement of almost $400 million in new loans reflects
\nboth IMF endorsement of the agenda of Indonesian economic reform
\nfor the next six months and a vote of confidence in the new
\neconomic team, whose announcement last month initially got a very
\nnegative market reception.<\/p>\n
However, as IMF first deputy managing director Stanley Fischer
\nwarned, when announcing the decision in Washington on Thursday,
\nthe nascent economic recovery could quickly stall if market
\nconfidence does not take root.<\/p>\n
Indonesia's economic reforms were indeed at a crucial stage.
\nAs IMF payments out of its bailout fund had frequently been
\ndelayed since 1998 amid political upheaval, corruption scandals
\nand doubts about the government's ability to follow through on
\nits reform program, the market sentiment toward the country's
\neconomic outlook remains fragile. The latest IMF move nonetheless
\nwill be helpful in influencing the market to give the economic
\nteam the benefit of the doubt.<\/p>\n
The litmus test of the economic team's credibility will start
\nimmediately with the plan to increase domestic fuel prices next
\nmonth in a long-delayed effort to gradually reduce the state
\nbudget deficit to a sustainable level. Inadequately prepared,
\nthis well-intended move could set off a new bout of social and
\npolitical instability.<\/p>\n
The government is facing quite a dilemma. Noting last week's
\nprotests across western Europe against high fuel prices might
\ncause the government to have second thoughts about the planned
\nmeasure and prompt another last-minute postponement at the
\nexpense of sorely needed fiscal consolidation.<\/p>\n
Without a stable macroeconomic condition nothing else could
\nhappen. However, a stable macroeconomic condition is not
\nsustainable without fiscal reforms, which are crucial for
\ngradually lowering and eventually abolishing the budget deficit.
\nThey are also a precondition to the smooth implementation of
\nintergovernmental fiscal relations, which are sorely needed to
\nplacate separatist sentiments in resource-rich provinces.<\/p>\n
The 2001 budget proposal should also be submitted to the House
\nof Representatives next month. How the draft budget reflects
\nconcerted efforts to prevent an explosive fiscal deficit through
\nasset recovery, debt restructuring and privatization of state
\ncompanies will determine whether the budding recovery accelerates
\nor stalls.<\/p>\n
How the economic team goes about executing its 10-point
\neconomic recovery acceleration program that it has flaunted since
\nlate last month will also test its credibility. Come December,
\nthe government will have to account for the execution of its
\nreform measures during the last quarter.<\/p>\n
The challenges for the economic team indeed remain uphill. The
\ncountry is still saddled with a very fragile banking system and
\nmountains of corporate debt and is struggling to reform
\ngovernment and legal institutions riddled with corruption.<\/p>\n
Structural reforms in the corporate sectors are similarly
\npivotal for sustaining economic recovery because the health of
\nthe economy as a whole depends on the soundness of business
\nunits.<\/p>\n
Barring a further worsening of security and political
\nconditions, the IMF's endorsement of the reform agenda and the
\nvote of confidence it gave through the approval of the third
\ntranche loan will help improve the market environment for the
\neconomic team to carry out its tasks.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-imf-support-1447899208",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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