Govt insists on maintaining high forex level

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."