IMF urges RI to continue reform efforts

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.