Wed, 13 Aug 2003

IMF completes 10th review of RI economy

The Jakarta Post, Jakarta

After completing its 10th review of Indonesia's economic reform program, the International Monetary Fund (IMF) praised the stable performance of the country's financial markets despite the recent bombing at a Jakarta hotel.

"The foreign exchange, equity, and bond markets have performed well, despite the recent tragedy at the JW Marriott Hotel in Jakarta," IMF Asia Pacific senior adviser Daniel Citrin said in a statement issued on Tuesday.

The solid performance of the financial markets reflects the resilience of Indonesia's economy, the IMF said, which led to optimism that "the modest growth of around 4 percent remains achievable this year".

The government has targeted 4 percent economic growth in the 2003 state budget.

The rupiah and the stock index, both of which stumbled after the Marriott bombing last week, have regained their footing. On Tuesday, the rupiah closed at Rp 8,535 per US dollar, rallying for the fourth successive trading day, with Monday's closing at 8,540.

The Aug. 5 attack killed 11 people and injured some 150 others.

The statement also noted that the country had made progress in reforming various areas of the economy, including the financial sector, public finance and macroeconomics.

The IMF said this progress would "help entrench the gains in macroeconomic stability as well as boost the prospects for growth and employment".

The review will be presented to the IMF's board of executives in Washington. If approved by the board, it could lead to the disbursement of a US$480 million loan tranche.

That would be one of the fund's remaining two loan disbursements, after Indonesia decided not to extend the current $5 billion IMF loan program when it expires in December.

"The decision not to request a successor financial arrangement reflects the success of the government in improving macroeconomic conditions over the past couple of years," the IMF said of the government's decision to enter a post-program monitoring (PPM) arrangement with the fund rather than extending the program.

Under the PPM arrangement, the IMF will still meet twice a year with the Indonesian government to discuss the economy -- its performance and policies, the statement said.

Indonesia requested an IMF bailout program after being hit by the 1997-1998 economic crisis. In return for the IMF loans, the country had to draw up quarterly economic reform targets that were subject to the approval of the IMF.

IMF's latest assessment of RI's economy

1. On macroeconomic performance: Inflation has declined markedly and the government now expects it will be in the range of 5 percent to 6 percent by year-end. The 2003 budget is on track and this will support the steady reduction in public debt ratio.

2. On financial sector reforms: Development in preparing a financial safety net -- including establishing a deposit insurance facility -- will permit, over time, an unwinding of the blanket guarantee of bank liabilities while ensuring the systemic safety of the financial system.

3. On public finance reforms: The ongoing reforms of the tax and customs administration are to be broadened. The Ministry of Finance is to be reorganized to provide effective treasury and budget functions.