Tue, 24 Jun 2003

Exit strategy from IMF must not create uncertainty: BI

Dadan Wijaksana, The Jakarta Post, Jakarta

Bank Indonesia warned on Monday the government's exit strategy from the International Monetary Fund (IMF) must not create uncertainty, as it would come at the expense of confidence in the economy -- which has been on the rise lately.

Hartadi Sarwono, the central bank's newly inaugurated deputy governor, therefore suggested that the government, in repaying its debts to the IMF, stick with the initial repayment schedule whatever exit strategy was adopted after the current program expires later this year.

"The maturity profile of the debts (to the IMF) has been set clearly. Why don't we follow it? Don't ask for a revision, it would only create further uncertainty," Hartadi told reporters on the sidelines of the swearing-in ceremony.

By not creating new uncertainties, the rising confidence in the economy, as seen in the country's current stable macroeconomic indicators, could then be maintained, he explained.

Indonesia is currently on the verge of ending a five-year US$5 billion IMF loan program, which was first established in 1999, and a special team is now exploring the best possible options for the post-program relationship with the IMF.

In return for the financial aid, the IMF set out conditions in a number of letters of intent (LoI), which contained the country's key economic reform programs and several time-bound targets, which the government has to meet quarterly.

After the IMF program ends, Indonesia will owe about $9 billion in total debts to the Fund. The country needs to return at least some $6 billion as its quota as an IMF member only stands at less than $3 billion.

However, it remains undecided whether the payments of the excess funds will be made altogether, or follow the initial schedule, which runs until 2010.

Currently, the country's international foreign reserves, which will be used to repay the debts, stand at around $34 billion.

State Minister for National Development Planning Kwik Kian Gie is among those who have suggested that Indonesia should immediately repay all its debts to the IMF so that the Fund could no longer exert influence over the management of the country's economic affairs.

Others, however, say that Indonesia must use its reserves wisely to further boost confidence, and therefore there is no need to repay the IMF loans -- which carry low interest rates -- all at once.

Separately, Minister of Finance Boediono said that a careful and thorough analysis had to be done in selecting an exit strategy from the IMF as a wrong decision could have a serious impact on the country's economic and political circumstances.

Boediono pointed out that there were three crucial things the government needed to do to continue the economic recovery program in the post IMF era, which all had a lot to do with retaining confidence in the economy.

They were: ensuring fiscal sustainability in the 2004 state budget, the success of 2004 general election process and maintaining national integrity by allocating sufficient funds to the regions through the budget.

Due to its critical nature, Boediono described the transition to a post-IMF world as a "critical juncture" in the country's efforts to build continued confidence in the economy.

"This confidence is very important. We need to show that the government is capable of taking care of its own finances and that we're also capable of consistently undertaking economic reform," he said.