Govt warned it could lose int'l support

Govt warned it could lose int'l support

JAKARTA (JP): Indonesia risks losing support from foreign
financial institutions if the country continues to neglect key
reform strategies due to its lack of commitment and protracted
political quarrels, economists said on Monday.

Noted economist Sri Mulyani Indrawati said foreign lenders
were becoming impatient with the ineptitude shown by Indonesia in
adhering to its own reform agenda as agreed to by the government
and the International Monetary Fund (IMF).

The uncertainty over Indonesia's commitment to reforms was
hurting its relationships with foreign lenders, she said. "The
question is whether Indonesia still wants to conform with
international norms," Sri told reporters following an economics
seminar relating to Syariah (Islamic law).

She was responding to recent comments made by President
Abdurrahman Wahid's foreign economic advisers, who urged
Indonesia to mend ties with international institutions.

Relations between the IMF and the government have deteriorated
since the Fund has showed no sign of disbursing its $400 million
loan package originally due last December.

The IMF delayed the loan as the government failed to meet
agreed reform agendas of divesting its stake in Bank Central Asia
(BCA) and Bank Niaga.

Disagreement over decentralization issues and amendments to
the central bank law led the Fund to further prolong the delay in
the third disbursement of its $5 billion bailout fund.

Coordinating Minister for the Economy Rizal Ramli added to the
friction when he admitted before foreign journalists that the IMF
was too demanding.

"Two months after delay, and still no review (from the IMF).
It's not clear when the IMF is coming, and the international
community is wondering what to make of Indonesia," Sri added.

She said a review by the IMF was vital to maintaining support
from other international lenders, such as the Consultative Group
on Indonesia (CGI).

"CGI and the Paris Club all refer to the condition that
Indonesia must obtain the IMF's approval for the Letter of Intent
(LoI)," she explained.

Economist Hadi Soesastro of the Center for Strategic and
International Studies (CSIS) said Indonesia should have realized
the importance of maintaining a good relationship with the IMF.

"We should be ashamed that foreigners have felt the need to
come down here and remind us," Hadi said.

He said the LoI was signed by the government and as such it
must be honored.

"Don't sign an agreement if you can't stick to it," he said.

If the government has problems with the IMF, he went on, it
should resolve them internally instead of going public.

"Don't bring the problem into the open where it can become a
political commodity," Hadi said in reference to Rizal's comments
about the Fund.

Under the LoI, the government and the IMF set out key economic
programs. Compliance to the LoI is a prerequisite for obtaining
the IMF loans.

The IMF conducts regular reviews of the LoI's implementation
prior to the disbursement of more loans.

But in the past two months, she continued, Indonesia seemed to
have lost its motivation for reforms.

"I think to other countries this (uncertainty) would be very
critical," Sri said.

She added that other suggestions by the foreign advisors were
indeed only reminders to Indonesia of its reform commitments.

The advisors also urged the government to speed up financial
reforms and to defuse political instability.

The President's foreign economic advisors include former U.S
Federal Reserve chairman Paul Volcker; Singapore's Senior
Minister Lee Kuan Yew; and former senior executive of Germany's
central bank Ulrich Cartellieri.

"There is nothing new in their suggestions ... they are a
reaffirmation of the very basic objectives the government must
hold onto," she said.

Sri further commented that the government's move to amend the
Central Bank Law 23/1999 had also caused concern among the
international community.

"They (the international community) think the central bank has
become a political toy," she said.

Some analysts suspect that the amendment is merely a political
maneuver to oust Bank Indonesia's current governor Sjahril
Sabirin.

President Abdurrahman Wahid is known to dislike the governor,
who was appointed to the position by former president Soeharto.

Sri said foreign lenders were worried that the costly
recapitalization of the banking sector would not stop the
government from resorting to political intervention there too.

The recapitalization cost of over Rp 600 trillion (about US$63
billion) is causing a hefty deficit in the state budget which the
IMF's loans must fill. (bkm) Editorial -- Page 4