IMF warns RI of challenges ahead

The Jakarta Post, Jakarta

More prudent budgeting and the removal of fuel subsidies are important challenges ahead for the government, if it wants to consolidate the progress Indonesia has made in recent years, the International Monetary Fund says.

In its latest review of Indonesia's economy, the IMF's Executive Board said in a statement it "welcomed the continuing improvement in the overall performance of the Indonesian economy in recent years.

"Which has been manifested in the considerable progress toward achieving macroeconomic stability, lowering public debt, restoring the health of the banking system, and reducing vulnerabilities."

The IMF, however, said Indonesia still faced key policy challenges in stimulating economic growth to create jobs and reduce poverty.

"Further fiscal consolidation is a key priority in the authorities' strategy to lay the basis for sustained economic growth," it said, welcoming the recent revision of the 2005 state budget, which reflected more realistic assumptions and aimed for a reduced deficit.

The IMF also stressed the importance of reducing fuel subsidies, which have put much stress on the budget amid rising global oil prices.

On the central bank, the IMF commended Bank Indonesia (BI) for its continued tight monetary policy and its focus on containing inflation through its newly introduced benchmark interest rate scheme.

"Convincing use of the new interest rate policy will help maintain stability and enhance confidence," it said, adding that further tightening might still be desirable in view of the recent pressures on inflation and the exchange rate because of their possible effect on economic growth.

The IMF also recommended BI limit its interventions into the foreign exchange market to those needed to counter short-term volatility.

The review is part of IMF's non-binding, post-program monitoring with Indonesia, which began last year after Indonesia ended its program under the IMF following the 1997 Asian financial crisis.