IMF urges government to speed up reform program

Dadan Wijaksana, The Jakarta Post, Nusa Dua, Bali

The International Monetary Fund (IMF) said Tuesday that though Indonesia had been making progress in certain areas, its reform agenda was unfinished, resulting in modest economic growth.

IMF Asia Pacific region senior advisor Daniel Citrin reiterated his view as outlined in his speech during the first day of the Consultative Group on Indonesia (CGI) meeting here.

The CGI groups the country's major foreign donors.

"Growth, while positive, remains disappointing relative to the 6 percent pace needed to make significant inroads in reducing poverty and unemployment", Citrin said.

Citrin is also currently leading an IMF team to assess the government's reform program in return for a loan facility. He said the IMF hoped to reach a new loan agreement with Indonesia by the end of the first quarter under its $5-billion loan program.

Despite success in maintaining macroeconomic stability over the past year, Indonesia's growth still lags behind other crisis- hit nations in the region.

The remarkable steady and solid performance against the U.S. dollar, relatively manageable inflation rate, and the declining trend of the Bank Indonesia benchmark interest rates have yet to offset the setbacks in investment and export performances, resulting in a lower than expected economic growth. After posting a 3.4 percent economic growth in 2001, the government is now expecting the economy to grow by 3.6 percent this year.

The figures are deemed insignificant to deal with rising poverty and unemployment in the country. The World Bank estimated poverty in 2002 to reach 16 percent of the total 210 million population in the country.

The mediocre growth would also be insufficient to absorb the estimated 2.5 million entering the workforce each year.

Therefore, Citrin suggested the government focus its 2003 program on certain objectives: consolidating recent gains in macroeconomic stability, strengthening public debt sustainability over the medium term, continuing to make progress in restoring a sound banking sector capable of performing its critical financial intermediation function and enhance the investment climate through a range of reform measures.

Thus, it would be essential for the government to begin tackling more decisively the problems related to the investment climate.

To overcome this, the most profound efforts to be done would be reform in the legal and judicial sector, deemed as critical to produce sustained improvements in the investment climate.

Other efforts include, creating a sensible labor market policy that can strike a balance in meeting the interests of both employers and employees, ensuring regional autonomy does not discourage investors and reformulating customs and tax administration.

Despite the piles of homework, however, Citrin noted that the government had already laid some sound foundations to meeting such challenges.

To mention a few, he pointed out progress the government had made during the course of last year, such as maintaining fiscal stability, further divestment and privatization programs.