Govt urged to join IMF postprogram monitoring

Govt urged to join IMF postprogram monitoring

Fitri Wulandari, The Jakarta Post, Jakarta

Given the current state of the economy, the government should
accept the International Monetary Fund (IMF)'s post-program
monitoring arrangement once the current program expires later
this year, a number of economists said.

Economist Sri Adiningsih of the University of Gadjah Mada said
that by accepting post-program monitoring (PPM), the government
would not immediately have to repay its huge debt to the IMF,
adding that this option also would not be in violation of a
ruling by the People's Consultative Assembly (MPR).

"If Indonesia wishes to part ways with the IMF it must enter
post-program monitoring... there is no other choice," Adiningsih
told The Jakarta Post on Saturday.

Vice President Hamzah Haz said on Friday that the government
was determined not to extend the current IMF program, as required
by the MPR, the country's highest legislative body.

This was the first official statement regarding the issue,
which has been a hot topic of debate for the past several months.
Some top government officials and economists have called on the
government to terminate completely the IMF program, saying the
fund-sponsored program has only worsened the country's economic
situation.

The government has set up a special team to explore various
options, including the possibility of adopting the PPM
arrangement.

Without the PPM, the country would be required immediately to
repay its US$6 to $7 billion outstanding debt to the IMF in order
not to surpass country's loan quota of $2 billion. Repaying the
debt would lower the country's foreign exchange reserves, which
stand at about $33 billion, threatening the hard-won stability of
the rupiah.

The PPM can be applied to any member of the IMF that has gone
through the fund's special program and whose loans surpass its
loan quota.

Under the PPM arrangement, the IMF would no longer be involved
in designing the country's economic reform programs, but would
continue to play a monitoring role.

Economist Fauzi Ichsan said the PPM arrangement was important
for maintaining investor confidence in the government's reform
program, which is crucial if the country hopes to secure
continued financial support from foreign lenders.

An end to the existing IMF program would mean that the Paris
Club of creditor nations would no longer provide Indonesia with
debt rescheduling facilities. This would mean Indonesia would
lose some $3 billion in debt rescheduling facilities in 2004,
creating a serious risk to the country's fiscal system and
macroeconomic stability.

The government, however, could seek bilateral negotiations
with individual creditor nations.

Pande Radja Silalahi of the Centre for Strategic and
International Studies said the continuing presence of the IMF via
the PPM arrangement was crucial, especially next year with
elections and possible military operations in Aceh, both of which
could erode confidence in the economy.

Adiningsih said a PPM agreement was the only feasible option
for Indonesia.

She said a stand-by loan arrangement would not be politically
popular because it would require the country to draw up a letter
of intent, as it is now required to do under the IMF program.
The letter of intent, which is basically a set of economic
targets the government must meet, would be binding.

A stand-by loan arrangement would mean Indonesia could still
receive loans from the IMF, but only for precautionary measures.