INFID's sweeping criticisms
Rejecting the Indonesian government's reform agenda as generally useless seems to be a pointless criticism that doesn't deserve any attention from the economics ministers, especially because the critics didn't come up with alternative policy recommendations.
Yet we see it necessary to comment on the sweeping criticisms made by International NGO Forum on Indonesian Development (INFID) last week, which demanded the government drop the reform programs it announced in a White Paper last September.
The reform agenda, which will replace the International Monetary Fund (IMF) program later this year, is by no means the best way of improving the welfare of the people, alleviating poverty.
But what is the point for INFID to attack as useless the reform measures that have gone through a national political consensus in the House of Representatives if it simply stopped short of suggesting better, more realistic, alternative programs.
Given the fragile economic condition and in anticipation of heightened political emotions next year, the government doesn't have much choice but to continue to push through the big backlog of reform measures designed to strengthen macroeconomic stability, further restructure the financial service industry and stimulate investment, exports and job creation.
These programs certainly do not directly reduce poverty, nor will they immediately cut down the stocks of government debts. But how could we talk about poverty alleviation and reducing government debts if the economy did not grow. The economy will be able to grow only if there is a minimum degree of macroeconomic stability with the inflation and exchange rates fairly stable to allow for reasonable calculation of business risks.
Credit interest rates will not go down if inflation is not controlled, and banks will remain highly averse to new lending if the business risks are persistently very high. These are some of the issues that are being addressed by the reforms stipulated in the White Paper.
Other measures include reforms in customs and tax services, legal sector, licensing system, improvements in basic infrastructures, regional regulations and anti-corruption measures and in other trade-facilitation and business-support services, all designed to stimulate investment, export and job creation.
All these measures are needed to maintain macroeconomic stability and to fuel a stronger recovery in order to generate a larger number of jobs to absorb the huge number of unemployed and new entrants on the labor market.
If most of these measures will be useless, as INFID claims, are there better, alternative measures that are workable under the current conditions?
True, high growth will not automatically reduce poverty if the government does not enhance a more equitable distribution of income and implement better targeted poverty alleviation programs.
But nothing else will happen if there is no macroeconomic stability and a fairly high economic growth. One must also remember that what the government is doing and will do in the economic sector next year is still very much crisis management.
INFID lambasted the government for allocating more than US$8.1 billion on foreign debt principal and interest payments next year, thereby leaving meager sums for operating and development budgets and for financing social safety-net programs.
Is INFID so naive that it does not realize that the heavy debt service burden was caused by the national political consensus not to renew the IMF program?
Since Indonesia decided not to renew its program with the IMF, the country will be deprived of access to debt-rescheduling facilities from the Paris Club of sovereign creditors and will automatically enter the IMF Post-Program Monitoring (PPM) mechanism because its debts to the multilateral agency are far in excess of its borrowing quota.
But this PPM does not mean that Indonesia remains under IMF special arrangements and is therefore still eligible to another debt-rescheduling facility from the Paris Club, as INFID claims.
Every member that owes the IMF more than 100 percent of its quota but decides to end its IMF program automatically falls under the PPM. This simply makes sense since a big borrower indeed requires special supervision.
That is why both Thailand and S. Korea, which had earlier graduated from the IMF programs, did not abruptly terminate their special arrangements with the IMF but instead made a gradual exit, first by opting for a precautionary arrangement, then entering the PPM, before finally paying up all their debts to the IMF.
Also contrary to INFID claims, Indonesia is not entitled to the heavily-indebted poor countries (HIPC) initiative of the Group of 8 (G-8) developed countries. Even though this initiative was improved at the G-8 summit in Evian, France, last June, this scheme is open only to low-income countries, which have completed their poverty-reduction strategy papers. Indonesia is already classified as a middle-income country and is still working on its poverty-reduction strategy paper.
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