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.