'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.