Businesses back IMF's monitoring role

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.