Govt determined to part with IMF: Hamzah

Fitri Wulandari, The Jakarta Post, Jakarta

The government is determined not to extend its agreement with the International Monetary Fund (IMF), due to end this year, Vice President Hamzah Haz said on Friday.

"The government is determined to end the IMF (agreement). But we have to prepare ourselves for that. It means we have to tap domestic resources," Hamzah said after Friday prayers at Al Falah Mosque, Tangerang, Banten.

Hamzah added that if the government wished to extend the agreement, then it would have to be discussed with the People's Consultative Assembly (MPR), as the MPR annual session last year had clearly ordered termination of the IMF program.

Hamzah's comment is the first official statement regarding the issue of IMF program termination.

The Vice President recognized that ending the IMF program would mean that Indonesia would have to repay about US$6 billion to $7 billion in outstanding debt to the IMF.

Indonesia's foreign exchange reserves stood at US$33.6 billion as of the end of April.

Hamzah also expressed his confidence that, without the IMF, Indonesia's fiscal status and balance of payments would remain safe, provided that the domestic security situation remained stable and exports increased.

"The problem in Aceh should be resolved quickly so as not to become a burden. The banking sector should start extending credits to improve the real sector," he was quoted as saying by detik.com Internet news portal.

The government plans to launch a military operation in Aceh to quell a separatist movement in the restive, resource-rich province.

Meanwhile, analysts said military operations in Aceh would create new security uncertainties, possibly increasing next year, at the very time the country would be participating in legislative elections and the first-ever, direct presidential election.

With such increasing uncertainty, a number of economists have suggested that the government extend the IMF program, at least to maintain creditor confidence in Indonesia.

Economist Fauzi Ichsan from Standard Chartered Bank said that once the IMF exited from the country, the international community would question Indonesia's seriousness in carrying out its own structural economic reform programs.

"At present, international creditors and investors still have the confidence that Indonesia can carry out its economic reforms because the IMF is watching the process," Fauzi told The Jakarta Post.

Economist Pande Radja Silalahi, from the Centre for Strategic and International Studies (CSIS), said he doubted that the government would seriously implement structural economic reforms once it terminated the IMF program.

He argued that even during the IMF's five-year "tutelage", the government had dragged its feet when it came to implementing the structural economic reforms set out in the government's letter of intent to the IMF.

"If the government had been serious in carrying out economic reforms in the past, we would have 'graduated' from the IMF sooner and not be dragging on like this, a situation that is costing us dear," Pande said.

IMF loans to the country are tied to the government's commitment to implementing economic reforms.