Businesses back IMF's monitoring role

Fitri Wulandari, The Jakarta Post, Jakarta

The business sector has demanded that the government continue working with the International Monetary Fund (IMF) through a post-program monitoring system, saying the fund's presence is still crucial to maintain international confidence in the country.

"We agree that the IMF program should not be extended (when it ends later this year), but we can't get rid of it (IMF) all at once because it lends credibility," Sofjan Wanandi, chairman of the National Committee for Economic Recovery (KPEN), said in a media briefing on Friday.

Therefore, he said, the only alternative after the contract with the IMF expires at the end of this year is to proceed with post-program monitoring.

The IMF's presence, Sofjan said, not only brings financial support, but more importantly lends confidence.

"Capital inflows are still good now because investors are confident that the government can carry out economic reforms under the IMF," he said.

Sofjan added that if the government chose to cut ties with the IMF altogether and repay its debt to the fund, amounting to around US$8 billion, investor confidence in Indonesia would likely drop as the country's foreign exchange reserves would also decrease from the current level of $33 billion.

"It would raise Indonesia's country risk and this would make it more difficult for us to compete internationally. It would be more costly to do business," he said.

Post-program monitoring is a requirement for IMF members who complete its program. Under the arrangement, IMF would only monitor how the government carries out structural economic reforms.

Severing ties with the IMF also means that Indonesia would likely lose access to the debt rescheduling facility from the Paris Club.

However, staunch critics of IMF say the government should completely cut ties with the fund to allow more room for maneuver for faster economic recovery.

They contend that the IMF had failed to save Indonesia from the crisis in 1998 and its rigid, textbook economic policies had prolonged the crisis.

They also argue that the IMF forced Indonesia to liberalize its market at a faster pace, which had victimized domestic producers.

Economist Sri Mulyani Indrawati, IMF executive director for the Southeast Asia region, said totally settling the IMF loan would send the wrong signal to the market, create panic and eventually threaten the economy.

"When the market sees Indonesia's foreign exchange reserves drop, they would think there must be something wrong with our country," Sri said at a discussion on Friday.

It would unsettle the market. And when the market panics, it influences all economic indicators such as exchange rates, interest rates and inflation. Eventually, it would influence our balance of payment and deplete the already low foreign exchange reserves.

She said other Asian countries that were in a healthy economic condition were racing to increase their foreign exchange reserves to regain market confidence.

"Don't force payment of the whole IMF loan just to get rid of it. Market confidence is important," Sri stressed.

Sofjan underlined that the IMF's presence was still crucial to monitor the government's budget discipline, particularly in the current uncertain political situation with the possibility of military action in Aceh and the legislative elections.

"Political pressure could force the government to spend more money," he said.

As the end of IMF program nears, debate on how Indonesia should continue economic reform is increasing.

Previously, the IMF gave three options for completion of the current arrangement. They are a "standby arrangement", a "precautionary standby arrangement" or completely ending the arrangement, which means Indonesia automatically will be put under post-program monitoring.

Both standby arrangement and precautionary standby arrangement would still give Indonesia access to special loans from the IMF upon approval of its reform programs.

However, Indonesia would not have access to debt rescheduling facilities with the precautionary standby arrangement and post- program monitoring.