Commitment to reform key to graduate from IMF

A'an Suryana, The Jakarta Post, Jakarta

The government must prove it has the political will and discipline to continue implementing difficult economic reform measures if its wants the country to graduate from the International Monetary Fund (IMF) economic reform program, economists say.

Anton Gunawan, an economist at Citibank, said on Tuesday that strong commitment to the reform program was necessary to maintain the support of the IMF in crucial debt rescheduling talks with foreign creditors.

He was responding to a report in this paper that the country could leave the IMF's "intensive care unit" next year amid positive progress in macroeconomic indicators.

But Anton said that achieving a stable macroeconomic condition was not enough to justify the country leaving the IMF reform program.

"Indeed, macroeconomic indicators are improving. But, the government must continue to work hard to show that Indonesia is seriously implementing sound economic reforms," he said.

Macroeconomic indicators such as inflation, interest rate and exchange rate of the rupiah against the U.S. dollar have been improving since the beginning of this year. The IMF has even praised this development.

The current three-year IMF reform program was supposed to end in November this year, but the government decided earlier this year to extend it until the end of 2003 as part of a condition to obtain rescheduling facilities from the Paris Club of creditor nations for some US$5.4 billion in sovereign debts maturing in 2002 and next year.

The Paris Club requires the IMF support to grant the rescheduling facility. Economists have said that the country would still need such a facility in 2004 to help avoid fiscal disaster.

Indonesia can still maintain the support of the IMF in the debt rescheduling talks with the Paris Club only if it leaves the IMF program in an "orderly fashion," experts have said.

"That's why the government must be able to demonstrate to the IMF and the international community that it is serious in implementing the reform programs," said Pande Radja Silalahi, an economist at the Center for Strategic and International Studies (CSIS).

"The government must immediately prepare an exit strategy," he added.

Anton, however, said that so far the signs were discouraging. He pointed out that the government had been slow in carrying out key asset sales, which were crucial to help revive investors confidence in the economy.

Economists said that if Indonesia could leave the IMF intensive care unit in an orderly manner, it would send a positive signal to investors, which in turn would help improve the country's sovereign rating.

Improvement in the country's rating would help encourage investors to return here and would help ease costs to the local corporate sector in raising funds for working capital overseas.

Pande said that the government must start holding bilateral talks with major creditor nations to maintain their financial support once the country leaves the IMF program.

The financial support of these creditors was crucial because the state budget would continue to be heavily burdened by the huge cost of the late 1990s bank bailout program, he said.

He added that another strategy was to seek ways to boost tax revenues to fund the state budget.