Exit strategy from IMF must not create uncertainty: BI

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.