IMF completes final review of RI economy

Dadan Wijaksana, The Jakarta Post, Jakarta

The International Monetary Fund (IMF) has completed its review of the country's economic reform program, the final review under its four-year US$5 billion loan program.

A press release said on Thursday that an IMF visiting team had completed the eleventh review to be presented soon to the Fund's Board of Executives in Washington.

If the presentation was successful, it will pave the way for the Board's approval to disburse the final loan tranche of around $490 million for the country, the release said.

In its final review, the IMF acknowledged the progress the country had made in various areas during the four-year span, and gave a vote of confidence that it could be sustained in the future.

"Reflecting on developments over the course of the four-year arrangement, macroeconomic stability has been restored, the banking system recapitalized and most banks (that were) taken over during the crisis divested," the IMF said in the statement.

With inflation easing, a stable rupiah and falling Bank Indonesia benchmark interest rate, Indonesia is experiencing its most stable macroeconomic condition since the crisis.

"In addition, balance of payments vulnerability has been reduced sharply with declining of external debt and rebuilding of foreign reserves."

Indonesia asked for the IMF assistance in 1999 -- under a program called the IMF Extended Fund Facility -- following the 1997-1998 economic crisis. In return, it had to meet quarterly economic reform targets according to signed letters of intent (LoI). Only if this LoI is approved by the IMF board, then the IMF funds can be transferred.

The government has decided not to extend the current IMF program when it expires later this year. This will mean the country is no longer eligible for debt rescheduling from the Paris Club of lending nations, which could create a heavier burden on the state budget starting next year as it would have to repay maturing debts.

To replace the IMF-sponsored program, the government has designed its own economic reform program in a bid to help maintain investor confidence.

IMF key points in 11th review

1. On Macroeconomics: Economic growth has picked up and is on track to reach 3.5 - 4 percent and inflation is likely to be 5 or 6 percent by year-end. The IMF views the government's targets of close to 5 percent for growth and 6.5-7 percent inflation in 2004 as appropriate. 2. Challenges: The IMF team welcomes the government's plans to sustain macroeconomic gains and boost growth and employment opportunities. This will be reinforced by renewed focus on measures to strengthen the investment environments. 3. On Fiscal Policy: The 2003 budget is on track to achieve its 1.9 percent of GDP target. The approved 2004 budget, targeting a deficit of 1.2 percent of GDP, is in line with the government's medium term efforts to strengthen fiscal sustainability. 4. Structural and Legal Reform: The IMF welcomed progress toward selecting commissioners for the Anti Corruption Commission and looks forward to establishment of the commission by early 2004. 5. Post-Program Monitoring: After the end of the current program, the Fund will hold regular consultancy meetings with the government, twice a year, on the country's economic performance and policy. 6. Strengthening SOEs: The IMF team welcomed recent efforts to improve state bank governance through, among other things, appointment of additional independent commissioners at Bank Mandiri. The team was also encouraged by the government's commitments to take stern actions to address core concerns related to the recently revealed loan scam at BNI.