IMF disburses loan
IMF disburses loan
The government should not let the high commendations of the
International Monetary Fund Executive Board in its seventh review
of Indonesia's policy performance last week go to its head, let
alone feel complacent and relaxed with regards to its reform
implementation.
The IMF completion of its review of Indonesia's performance
under a SDR 3.63 billion (US$4.8 billion) Extended Fund Facility
arrangement that was signed in February, 2000 with high
commendations should indeed be welcomed as a new positive factor
that will improve market confidence in the government and the
country's economic policies.
The board's approval last week of the new reform agenda the
government submitted in its seventh letter of intent (LOI) in the
third week of November will similarly bolster the market
sentiment toward macroeconomic stability because the endorsement
opened the way for the release of a further SDR 275.24 million
($365 million) of the facility. The new LOI itself is the third
supplement to the 53-point reform agreement that was signed with
the IMF in December, 2001.
The biggest positive impact of the IMF endorsement of
Indonesia's new reform agenda is not resulting from the loan
disbursement as the loan will serve only as a second-line defense
in the country's balance of payments but from the positive signal
it conveys to the market that the country's reform agenda is
moving along the right track.
The IMF did praise what it sees as important progress in
reform implementation that has contributed to marked improvement
in macroeconomic fundamentals.
However, the multilateral agency also warned of the
deteriorating economic outlook as a result of the Oct. 12
terrorist bomb attack in Bali, stressing the importance of
continued firm execution of reform programs.
The IMF representative in Jakarta David Nellor reiterated the
warning in a statement on Wednesday, strongly suggesting that the
government show stronger resolve in carrying out all the reforms
needed to remove the woes that are deeply rooted in the economic
crisis.
Policy coherence and consistent implementation of reforms are
imperative not primarily because they are a condition attached by
Indonesia's international creditors (Consultative Group on
Indonesia) to its new loan and commitments.
Both the IMF and the creditor consortium share the view that
without significant progress in banking, corporate, legal and
judicial reform and in the establishment of the rule of law as
well as the privatization of state companies -- which form the
core of the reform agenda -- no amount of foreign loans or grants
can help Indonesia get out of its economic crisis.
The continued recovery of bank and state enterprise assets are
an important element of the government's strategy to reduce the
level of public debt and consequently the sovereign risk and to
improve the efficiency of the private and public sectors.
Accelerated progress in implementing legal and judicial reforms
and the rule of law is critical not only to improve governance
but, more importantly, to reinvigorate the investment climate.
It is private investment, both domestic and foreign, that has
been and will continue to be the driver of economic growth. The
role of official foreign loans and grants is limited to helping
the government manage its budget deficit at a sustainable level
and to being a catalyst with regard to maintaining international
confidence in the country. The government's resource capacity
will also be severely restricted at least for the next five to
seven years due to its huge debt burden.
Private investment should therefore be reinvigorated by
carrying out the reform measures described above.
All the basic requirements to stimulate private investment
have been covered by the reform agenda. Private investors are
fully aware that many of the reforms cannot be completed
overnight. What they want to see is consistent implementation and
policy coherence.
Moreover, the government has only one year remaining, before
the IMF facility expires next December, in which to prove to the
market that it is truly determined to push ahead with its
structural reforms with or without the multilateral agency
constantly looking over its shoulder.