Fri, 09 May 2003

Indonesia can manage without IMF, says Citrin

The Jakarta Post, Jakarta

The Senior advisor to the International Monetary Fund's Asia and Pacific Department, Daniel Citrin said on Thursday that if the market situation remained stable, Indonesia's financial or fiscal condition would be manageable even without special financial aid from the Fund and the Paris Club of sovereign creditors.

Citrin said at a press conference that it was entirely up to the Indonesian government to decide on the kind of financial relationship it would have with the International Monetary Fund (IMF) after December, when the current Extended Fund arrangement ends.

"There are three options available for Indonesia upon the completion of the current arrangement. But for sure, the current facility that began in February 2000, can no longer be extended," added Citrin, who is here for the ninth quarterly review of the reform programs.

Citrin was accompanied by Stephen B. Schwartz, division chief of the IMF Asia and Pacific Department and David Nellor, the IMF's chief representative in Indonesia.

The three options, according to Citrin, would be to request a Standby Arrangement, a Precautionary Standby Arrangement or nothing at all, but each alternative would have its own conditions and consequences.

Under a Standby Arrangement, which normally has a term of between 12 and 18 months, Indonesia would still have access to special loans from the IMF contingent upon approval of its reform programs by the IMF Executive Board. Such an arrangement would also still enable the government to request a rescheduling of its debt from the Paris Club.

The conditions of the Precautionary Standby Arrangement are similar to the Standby Arrangement, except that the government would be ineligible for any debt rescheduling from the Paris Club.

Thirdly, Citrin added, completely ending any special arrangement with the IMF would deprive the government of any chance of debt rescheduling.

"At this stage, if the economy continues to stabilize, market confidence continues to improve, the rupiah strengthens and the interest rate keeps declining as they have done over the past year, our general conclusion is that the financial or fiscal condition will remain manageable," he said.

"(Quitting the IMF program) is a reasonable objective to shoot or strive for. It is not impossible for Indonesia to survive without special loans from the IMF and Paris Club," Citrin stated.

He nonetheless cautioned that the final scenario would still depend on how the situation developed over the next seven months when the precise numbers would become much clearer.

"But if you ask for my personal view and if I were Indonesia's chief economics minister, it would make sense to keep my options open and decide later on, in view of the uncertainty about the global economy," he added.

There have been increasing pressures from politicians and economists for the government to stop negotiating any special arrangement with the IMF after the end of the current program. This was also one of the recommendations made last year by the People's Consultative Assembly, the nation's top policy-making body.

Staunch critics of the IMF, from both the government and private sector, often cite several major mistakes made by the IMF in Indonesia in the 1997-1999 period, as well as the rigidity of its policies, as the main reasons for stopping all special arrangements with the IMF.

The IMF detractors claim the country's gross foreign reserves of about US$33 billion and the strengthening macroeconomic stability would enable the country to manage its economy without any special loans from the IMF or the Paris Club.

However, Minister of Finance Boediono warned last week that without another rescheduling of the debt from the Paris Club, the government's foreign debt service payments would almost double to Rp 74 trillion (US$8.4 billion) next year, in addition to its domestic debt service burden, which would increase by 22 percent to Rp 83.5 trillion.

Defenders of the IMF in Indonesia have argued that the market would be more comfortable if the government maintained a special arrangement with the IMF, at least for one year, in view of the politically turbulent period expected ahead of the 2004 elections, in addition to the lack of government credibility with regard to reform implementation.

Citrin corrected some misunderstandings among many Indonesian analysts, who believe the government would have to prepay the bulk of its debts ($8.6 billion) to the IMF if it no longer had a special arrangement with the IMF.

"Whichever of the three options Indonesia may take, it will not have to make any debt prepayment, but simply install the debts according to the original payment schedules," Citrin noted.

He said he simply did not know how the market would react to any of the three options Indonesia might take, but maybe the market would prefer the first option (the Standby Arrangement).

But whichever option is taken, "We expect the government to continue its structural reforms. After all, the reforms have always been the government's own programs, even under the current arrangement," Citrin added.