Tue, 29 Jul 2003

Govt retains IMF monitoring

The Jakarta Post, Jakarta

The government decided on Monday not to renew the existing International Monetary Fund (IMF) economic bailout program when it expires at the end of this year, but the IMF is still to monitor the country's economic reform program via a post-program monitoring (PPM) arrangement.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti told an afternoon press conference the decision was made at a Cabinet meeting led by President Megawati Soekarnoputri, who would outline the government post-IMF economic policy program in mid-August.

The decision comes as no surprise to many financial analysts.

The People's Consultative Assembly (MPR) has urged the government not to extend the current IMF program; but determining an exit strategy has proven to be difficult and has involved lengthy, emotional public debates due to opposing views, even within the Cabinet.

While many of Megawati's economics advisors apparently wanted to keep the IMF's monitoring role to ensure credibility in the economic reform program, a strong opposition camp led by Chairman of the National Development Planning Agency (Bappenas) Kwik Kian Gie and former chief economic minister Rizal Ramli has insisted that even without the IMF's monitoring, the government could design a credible economic program.

The opposition camp, which claims that the IMF program had failed to cure the country's economic illness, said the country's relatively strong foreign exchange (Forex) reserve of US$34 billion should be more than enough to repay at once all debts to the IMF, which is estimated to reach around $10 billion by the end of this year.

Dorodjatun said the government had decided on a debt payment based on the original schedule, spread over a seven-year period starting this year. Proponents of this strategy argue that it is better for the country to install the repayment and maintain a relatively high Forex reserve in case it has to deal with another, unexpected economic turbulence.

As a consequence, until the country can bring down its IMF- debt to below the member quota level of $2.8 billion, it must adopt a PPM arrangement -- a move also made by other crisis-hit Asian countries when they first ended their IMF programs.

Dorodjatun said, however, that depending on the country's progress, the elected government in 2004 could accelerate the repayment of the IMF loan.

Under the PPM arrangement, the IMF would review the country's economic progress twice a year, while the government must spell out its economic targets and reform programs in a matrix of executed efforts.

The monitoring by the IMF and the disclosure of a detailed economic program are expected to give rise to investor confidence, which will be crucial to the government, as Indonesia will no longer be eligible for the Paris Club's debt rescheduling facility as a consequence of ending the IMF program.

The government has said it would issue bonds, both at home and overseas, sell assets and seek foreign loans to finance next year's fiscal gap.