Govt insists on maintaining high forex level

The Jakarta Post, Jakarta

The Minister of Finance, Boediono, said on Friday that the government would stick with its original plan to repay the International Monetary Fund loan in seven years, turning down a suggestion from the House of Representatives, that the government should take advantage of the country's relatively high foreign exchange reserves to complete the plan in three years.

Boediono said that the economy would still need to maintain high forex reserves amid lingering uncertainties, particularly in 2004, when the country holds general elections.

"2004 will be a crucial year filled with many uncertainties, in the economy, politics, and security. So we must be ready with sufficient forex reserves," he told reporters.

The Chairman of the House Budget Committee, Abdullah Zainie, was quoted by Kompas daily as saying that, the House recommended that the government cut the country's debt to the IMF to below the member quota level of around $3 billion by 2006 -- so that the Fund could no longer influence the country's economic policies. Under the House proposal, the government would have to allocate more than US$2 billion each year for installments. The country's debt to the IMF would, therefore, reach $9.8 billion when the existing IMF bailout program ends this year.

Under the government's repayment plan, annual installments would be less than $1 billion, with the aim of decreasing the debt to below the quota level by 2010.

The government will not extend the current IMF program when it expires at the end of this year, but has decided to maintain the Fund's monitoring role via the post program monitoring arrangement (PPM), under which the government must discuss its economic policies with the Fund.

President Megawati Soekarnoputri is expected to unveil the country's post-IMF economic reform policies on Aug. 15 with the 2004 state budget.

Some experts have said that the termination of the IMF program would expose the economy to various risks, largely the absence of a debt rescheduling facility (from the Paris Club of creditor nations). This would cause a serious fiscal threat unless the government found alternative funding sources. One alternative is for the government to tap the overseas financial market by issuing bonds.

Analysts have said that it is crucial for the government to maintain investors confidence by pushing ahead with tough economic reform programs.

Meanwhile, Bank Indonesia senior deputy governor Anwar Nasution also said that it would be wiser for the government to maintain a high forex reserve level, to deal with the various uncertainties caused by the threat of terrorism and the general election.

"We should stick with the (original) plan," he was quoted by Antara as saying.

"The House must not interfere in economic affairs by politicizing it, don't (campaign) for a narrow nationalism."