'A long war could cost RI potential financial sources'

'A long war could cost RI potential financial sources'

Dadan Wijaksana, The Jakarta Post, Jakarta

Indonesia could struggle to find new financial sources to
replace the International Monetary Fund if the Iraq war lasted
longer than expected and hit the global economy hard, a top
Indonesian economist said Tuesday.

The efforts of the Iraqi people against the United States,
United Kingdom and Australian forces had started to shatter
earlier hopes of a short war, raising concerns of a potential
global recession, Danareksa Research Institute director Raden
Pardede said.

"Indonesia would find itself in problems because of this. As
the global economic recession would mean that everybody has to
deal with their own economic problems.

"It would be unlikely for anybody to lend a hand to Indonesia
while their hands are already full with their own economic
problems," Raden told The Jakarta Post.

Indonesia's IMF economic reform program, which started in
1999, expires this year and debate has raged over whether or not
it should be renewed.

The contract allows the country access to around $5 billion in
loans, in return for an obligation to meet economic reform
targets set by the agency.

The IMF's involvement was intended to help Indonesia recover
after it was struck by the economic crisis of 1997. The crisis
remains.

Citibank economist Anton Gunawan earlier said that without the
IMF, in 2004 alone Indonesia would lose debt relief facilities
amounting to around US$3 billion, which would otherwise be
available under the Paris Club deals if the IMF maintained its
role in the country.

Consisting the country's major sovereign creditors for talks
on debt rescheduling, the Paris Club always bases its economic
assessment on Indonesia on the IMF.

This is crucial as -- only via rescheduling -- the government
will have space to allocate a larger portion of its budget for
development spending, therefore generating higher growth.

If the IMF's contract is terminated, the government has no
other choice but to look for bilateral commitments from its
creditors to fill the gap.

However, the looming fear of global recession would cast a
thick shadow on such an effort, Raden said.

"Worse still, a prolonged war would further hurt the already
deteriorating investment environment here, putting at risk the
ongoing reform targets such as the privatization of state
assets," Raden said.