Experts say country still needs the IMF

A'an Suryana, The Jakarta Post, Jakarta

The role of the International Monetary Fund (IMF) to oversee the country's economic reform program is still crucial to help maintain investor confidence in the economy, a seminar concluded on Wednesday.

But participants of the seminar said the government had to modify the IMF's current role in such a way that the fund would no longer dictate every detail of the economic reform programs Indonesia needs to implement. The function of the IMF should only be limited to a monitoring role, they said.

"The recommendations of the IMF are still needed to secure investor confidence, particularly the Paris Club," said Umar Juoro of the Habibie Center, a private think tank, which organized the seminar on Wednesday.

The IMF came to Indonesia in late 1997 after the country was hit by a regional economic crisis. In 1999, the government extended the IMF bailout program, which will expire at the end of this year.

There has been strong political pressure on the government not to extend the IMF's role when the program expires, with critics saying that the IMF's prescriptions have only worsened the country's economic woes.

An immediate consequence of ending the current IMF program would be that the country could no longer obtain a debt rescheduling facility from the Paris Club of creditor nations and the London Club of foreign private lenders, who have always based their decisions on recommendations made by the IMF. Thus, this could create serious difficulties for the cash-strapped government to repay foreign debts maturing in 2004 and in the years to come.

The government has formed a special team to explore various options if it has to conclude the existing IMF program.

A source at the Ministry of Finance said that one possible option was to modify the current role of the IMF. He said that the presence of the fund was still needed to maintain credibility in the government's economic reform programs.

Some analysts have said it was hard to imagine the country having the discipline to carry out tough reform programs without a credible institution overseeing it, particularly next year when a general election will be held.

Andrinof A. Chaniago, an economist with the Center for Indonesian Regional and Urban Studies (CIRUS), said at the seminar that the IMF should no longer be deeply involved in designing all aspects of the country's economic reform programs in the future.

He said that the IMF's core competence was in the area of monetary policy.

He said that what the IMF had done in the past by intervening in microeconomic areas was a mistake. One example was the closure of certain banks in November 1997, which led to massive runs on banks.

"The IMF should now only concentrate on monitoring the monetary policy," he said.

Umar said that from the perspective of nationalism, the current dominating role of the IMF was unacceptable.

"It would be very difficult to convince people, especially the legislators, if they knew that the policy was dictated by a foreign institution," he said.