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