IMF hails rising confidence in RI, but seeks further reform

Dadan Wijaksana, The Jakarta Post, Jakarta

The International Monetary Fund (IMF) said on Friday that the government had succeeded in retaining market confidence three months after the expiration of the Fund-backed special lending program.

But the IMF also urged the government to press ahead with key reform programs, particularly in the areas of taxation, labor legislation and the legal system so as to further improve the business and investment climate in the country.

The Fund cited the current macroeconomic stability and the successful launching of the government's US$1 billion international bond on Wednesday as evidence of improving market confidence in the economy.

"The successful sovereign bond issue just concluded is testimony to Indonesia's successful fiscal performance over the past couple of years," the IMF said in a statement issued after the completion of its first review on the country's economy since the expiration of the IMF lending program late last year.

A special team led by visiting IMF Senior Advisor for Asia Pacific Department Daniel Citrin has been conducting a 10-day review and consultation with the government, under a post-program monitoring (PPM) arrangement, a mandatory requirement for a member country having just graduated from an IMF loan program.

Despite its non-binding nature, the review and assessment by the team is of major importance for the country as it represents a crucial indicator for measuring market sentiment on Indonesia's economy.

Meanwhile, Citrin told a press conference that going forward the government should push ahead with various reform programs, particularly in the areas of tax, law reform and labor law.

"Policy efforts should concentrate on these areas ... which are important for improving the business climate and laying the foundation for sustainable growth at a level that would reduce unemployment.

"Because Indonesia's GDP growth and export performance as compared with other nations in the region have lagged behind," Citrin told journalists.

During the visit, Citrin said the team discussed a wide range of economic issues with government officials and civil society organizations including labor unions, business people and academics.

Lack of investment has been the main factor stalling the country's economic growth, which has only managed to grow at a modest level of around 4 percent -- insufficient to absorb the some 2.5 million fresh job-seekers coming on the market every year.

The government is targeting economic growth this year of 4.8 percent.

Citrin cited the first of three priorities, namely tax administration and enforcement, as the main area of uncertainty to business people. "This covers everything from tax arbitration, the system and procedures, to inefficiency in the refund mechanism on VAT. There are many complaints over these."

As for labor legislation, Citrin emphasized that it must be a balance between protecting labor and providing flexibility for employers. He did not elaborate on whether this meant the government should revise the existing labor law, which was enacted last year.

The IMF said in a statement that at present the country's total outstanding debt to the Fund amounted to $10 billion. The current PPM program will expire when Indonesia's outstanding debt falls below $3 billion -- the lending quota for an IMF member country.

Indonesia asked the IMF to bail it out in 1999 after the country was rocked by the regional financial crisis.