IMF exit policy must be acceptable to market: Experts

The Jakarta Post, Jakarta

The government must prepare a credible economic reform program if it wants the country to graduate from the current International Monetary Fund program successfully, according to experts.

The experts said credibility was crucial to maintaining the support of the people and the international community for the country's fragile economy.

"The main concern is market acceptability," Thailand's former finance minister Tarin Niimmahaerni, who helped his country successfully graduate from the IMF in 2000, said during a seminar here.

Thailand was the first country in the region to be hit by the devastating 1997 financial crisis, which forced its government to adopt a tough IMF economic bailout program. The country has now begun to enjoy stronger economic growth, as reflected in its higher than expected first quarter growth of 6.7 percent from the same period last year.

The seminar, jointly held by Bank Indonesia, the Indonesian Economists Association (ISEI) and the University of Indonesia's Institute for Economic and Social Research, was partly aimed at gathering advice and input as the government explores various exit strategies for when the IMF program ends in November.

Besides Niimmahaerni, other prominent speakers at the seminar included the special adviser to the IMF's managing director, Jack Boorman, the former deputy governor of Australia's Federal Reserve Bank, Stephen Grenville, World Bank country director for Indonesia Andrew Steer, former coordinating minister for the economy Rizal Ramli and Bank Indonesia senior deputy governor Anwar Nasution.

These speakers will also attend an ISEI seminar next week in Malang, East Java, to discuss the same topic.

Grenville said that to help ensure a smooth transition after the IMF program ends, the government must set up a favorable environment. This will include establishing a "home-grown" economic program that reflects a strong commitment to continuing the current reform drive.

He said the market must view this home-grown program as an "anchor policy".

The government is expected to unveil its exit strategy from the IMF program next month, when it presents the 2004 state budget draft. Over the past several months there has been intense debate over what strategy the government should take.

One camp, whose leaders include Rizal Ramli, is demanding the government end the monitoring role of the IMF.

There are also calls for the government to allow the IMF to continue monitoring the government's economic reform program, giving the country access to IMF money if needed. This is similar to the exit strategy adopted by Thailand.

The IMF's continued monitoring role would be expected to instill confidence in the government's reform program, particularly ahead of the 2004 elections, when the government could be tempted to implement popular economic measures instead of tough reforms as the political pressure intensified.

Boorman said that in this type of situation, it was crucial for the country to maintain a healthy foreign exchange reserves level, which would be possible if the government opted for the Thailand exit strategy model.

If it does not extend the current IMF program, the government also will face a serious financing gap as the country will no longer be eligible for the debt rescheduling facility from the Paris Club of creditor nations.