IMF again delays aid

A delay of a few weeks in the next disbursement of loans from the International Monetary Fund (IMF) would not adversely affect the country's balance of payments or the state budget.

Still, a likely lesser impact of a delay -- as hinted at by chief economics minister Kwik Kian Gie and Finance Minister Bambang Sudibyo on Wednesday -- should not be taken lightly. Nor should it be a reason for complacency for those Cabinet ministers, who have publicly shown irritation over what they often call "excessive IMF intervention", hoping all the fuss will fizzle out in a few days.

A more devastating impact of the move on the part of the multilateral agency would be the negative market sentiment the decision would have on Indonesia's economic prospects and the increasing difficulty the government would face in negotiating with its foreign creditors, including the World Bank.

The market vote of confidence the government earned in January after the conclusion of an agreement with the IMF on a completely new set of reform programs could dissipate. This would consequently further stall the process of regaining investor confidence which is sorely needed to maintain the pace of the nascent recovery.

Since the middle of this month, when the first bimonthly IMF staff review of the reform program started, Dodsworth had expressed, at least on two public occasions, his frustration over the slow pace of the realization of reform measures as agreed on in the government's Letter of Intent to the IMF executive board on Jan. 20.

Perusing the target dates of the various policy measures, as stipulated in the attachment of the document, one can easily find so many programs which have fallen behind schedule. The list of slippages includes: corporate debt and bank restructuring, the asset valuation of at least 50 percent of the loan value of large debtors, a new governance structure at the powerful Indonesian Bank Restructuring Agency (IBRA), adoption of a strategy for corporate governance reform, Pertamina restructuring, streamlining of the tax refund audit process, appointment of consultative regional autonomy council with two secretariats, legal actions against all noncooperating shareholders of private banks taken over or closed in 1998 and the floating of Bank Central Asia shares.

Most detrimental, though, has been the frustratingly slow pace of domestic and foreign corporate debt and bank restructuring which is the key to economic recovery. An extreme lack of progress in these programs is stifling the economy and blocking new investment.

The replacement early this week of Eko Budianto, the chief of loan recovery at IBRA, which is now handling about Rp 220 trillion (US$29.7 billion) in bad loans, will not likely do much to accelerate the debt workout process. The real problem lies in the absence of a strong legal and regulatory enforcement to push bad debtors to enter negotiations in good faith. Creditors have been frustrated in observing how their large debtors continue enjoying life as if nothing has happened even though they have simply stopped serving their debts. The revamped bankruptcy court, set up last August, is not yet effective. Most of its verdicts are out of line by international commercial laws. Several high-profile cases, designed as shock therapy to jolt bad debtors to enter debt-resolution talks seriously, were thrown out of court. We wonder what happened to the ad hoc judges, who were supposed to have been assigned to assist judges in understanding complex business transactions.

The high-level financial policy committee, set up in mid- January to coordinate the debt restructuring efforts of IBRA, the Jakarta Initiative Taskforce and the Indonesian Debt Restructuring Agency, have not been heard from since its establishment. It is no wonder then that more than two years after the outbreak of the financial crisis, only a paltry sum of the $65 billion in foreign corporate debts and a mere 15 percent of the Rp 220 trillion domestic corporate debts have so far been restructured.

What this essentially boils down to is that most big and medium-scale businesses (productive assets) are now closed to new lines of working capital credits, thereby forcing them either to wholly stop or slash their production operation.

It is needless to reiterate that the government should act quickly, firmly and consistently to implement the reform measures as agreed on in the Letter of Intent. Another slippage would lead to the suspension of loans not only from the IMF but other multilateral creditors as well as government donors. The harsh, but blunt reality is that despite its flaws, the IMF remains the opinion leader among international creditors and investors.