Government soon to complete reform targets

JAKARTA (JP): Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie expressed optimism on Monday all reform targets agreed to with the International Monetary Fund would be achieved before Thursday's deadline.

"There are several items that we haven't completed yet under the letter of intent, but we are sure that we can complete them by July 20," Kwik said before attending the weekly meeting of economic ministers.

Kwik said among the tasks that still needed to be completed was the recapitalization of Bank Bali, which the government announced late on Monday it would begin. The announcement came following a meeting with the bank's former owner, Rudy Ramli.

The bank's recapitalization has been delayed due to a loan scandal that erupted last year. The scandal centers on the transfer of US$80 million under a questionable cessie agreement.

Other tasks outlined in the latest letter of intent (LoI) with the IMF concern the recapitalization of Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI).

Kwik said the deadline on Thursday was the government's internal deadline, and the disbursement of the IMF's loan would depend on the approval of the fund's board.

Compliance with the LoI is prerequisite to obtaining the IMF's loan package, which totals $5 billion, to finance the country's economic recovery.

The government failed to meet this year's first LoI deadline in April, causing a delay in the IMF's disbursement of $400 million. Indonesia obtained the funds after meeting the requirements of a second LoI in May, but another failure to meet the deadline would cause the delay of the third loan tranche, scheduled for August.

Possible delay

Economist Arif Arryman from the consultancy firm ECONIT also expressed optimism the government would meet the targets laid out in the third LoI on deadline. However, he warned that rising political uncertainty could prompt the IMF to delay its third loan disbursement.

Arif was referring to the upcoming General Session of the People's Consultative Assembly in August, during which President Abdurrahman Wahid is expected to appear before the Assembly to report on the progress he has made in leading the country.

Arif also said the President's intention to reshuffle his Cabinet after the General Session was a good opportunity to revise Indonesia's relation with the IMF, which he accused of focusing more on Indonesia's debt repayment capacity rather than the country's economic recovery.

According to him, the IMF was bound to the interests of donor countries which needed assurances of Indonesia's capability to repay its debts. "Economic policies such as those contained in the LoI are inseparable from IMF's aim to raise our debt repayment capacity," Arif said during a media conference.

To that aim, he said, the fund's LoI focused on a tight monetary policy that restricted government spending. "This policy hurts economic development .... The IMF is not overly concerned with demands for a quick economic recovery."

Such a lack of attention, he said, was visible in the fund's economic growth target, which was between 1 percent and 2 percent. "Only after protests from economists did they revise the target to between 2 percent and 4 percent."

He also said the LoI was inadequate to stimulate economic growth and lacked attention to creating job opportunities and developing the agricultural sector, issues that effect Indonesians at large.

He said that because the LoI did not contain any reform programs that touched on these sectors, the IMF should refrain from designing economic policies for industrial sectors.

He also said the IMF had failed to help stabilize Indonesia's monetary condition, with the rupiah sharply depreciating. Although the depreciation of the rupiah was mainly caused by political uncertainty, he said, the fund should have learned from past experience in South America, where it was shown that political transitions were bound to cause sharp currency fluctuations.

"The IMF should have from the beginning applied a monetary policy that is more resistant to the volatile political conditions," he said.

Arif said the IMF should have considered using a partial currency control for Indonesia. "The IMF therefore must handle the issues that fall under its core competence, which is macroeconomics and monetary policies."

He said policies concerning industrial sectors, such as the banking and telecommunication sectors, should not be included in the LoI. "If we need assistance in reforming our industrial sectors, we must refer to institutions that have competence in these fields, like the World Bank or the Asian Development Bank." (bkm)