IMF urges RI to continue reform efforts
The Jakarta Post, Jakarta
The International Monetary Fund (IMF) welcomed on Tuesday the government's decision not to request a new financial arrangement from it, but emphasized the importance of continuing economic reform efforts to maintain investor confidence in the economy.
The IMF's representative in Jakarta, David Nellor, said the decision reflected the significant improvement in the country's macroeconomic performance during the past couple of years.
"With continued reform that sustains investor confidence, the IMF believes that the financial situation will be manageable in 2004," he told The Jakarta Post.
The government in a Cabinet meeting on Monday decided not to extend the IMF multibillion dollar bailout program when it expires later this year, but will enter a post-program monitoring (PPM) arrangement, under which the IMF would still send its officials to Jakarta regularly to discuss key economic reforms with the government.
"The government can utilize the opportunity of PPM to seek the endorsement of its policies by the IMF so as to promote confidence in the markets as well as to encourage the support of multilateral and bilateral donors through the Consultative Group of Indonesia (CGI)," Nellor said, referring to the country's traditional lenders grouping.
The government has been under political pressure not to extend the existing IMF program, which was first introduced in 1997 following the regional economic crisis and renewed in 2000 and 2002. However, deciding on what exit strategy to be taken had been difficult, not only because of disagreement among top government officials, but also because of the tough fiscal challenges next year.
The decision not to extend the current program will eliminate the country's chance of obtaining around US$3 billion in sovereign debt rescheduling facility from the Paris Club next year. Another challenge is to plug next year's financing gap of nearly $11 billion resulting from the budget deficit, and maturing domestic and foreign debts.
The government has said that it would seek foreign loans, sell assets, privatize state-owned enterprises and issue bonds to finance the gap.
Centre for Strategic and International Studies (CSIS) economist Mari Pangestu said that the government decision was a "good choice", but had been largely expected by the market.
Indeed, the rupiah was unaffected by the news and closed lower at Rp 8,610 to the U.S. dollar from 8,530 on Monday as corporations bought dollars to repay foreign debts.
Mari said that the financial market was now waiting on what kind of reform programs would be adopted by the government in the coming years.
"People are still questioning the government's ability to implement the program. It is a big question mark in everybody's mind," she said.
The government will outline the post-IMF economic program in a documents called the "white paper", which will be presented by President Megawati Soekarnoputri on Aug. 15 at the House of Representatives.
Mari said the government had to have focus and be realistic with its economic targets.
"The program should address stability and issues in the real sector such as customs, taxation and how to restore investor confidence," she said.
Meanwhile, senior banker Cyrillus Harinowo welcomed the decision to maintain the IMF's monitoring role as it would help ensure the government took tough economic measures, particularly during the 2004 election year when officials tend to enact populist policies.