ISEI accepts IMF monitoring of Indonesian reforms

ISEI accepts IMF monitoring of Indonesian reforms

The Jakarta Post, Malang, East Java

The Indonesian Economists Association (ISEI) said here on
Tuesday that ending Indonesia's program with the International
Monetary Fund (IMF) would mean terminating the quarterly letter
of intent (LoI) and its supplementary memorandum, which the
government has to submit to the IMF as a precondition to the
disbursement of its loans.

The association stated at the conclusion of its 15th national
congress here that it would not be unusual if the government's
policy performance continued to be monitored by the IMF after the
end of its current program in Indonesia later this year.

"But Indonesia's relationship with the IMF should be based on
a partnership of equals, not one between a worker and a
supervisor," it added in a statement, which summarized the
conclusions of its three-day meeting.

The association reminded the government of the People's
Consultative Assembly recommendation in 2002 that the IMF program
not be renewed or extended after its expiry in December.

ISEI representatives had played an important role at the
assembly in having the recommendation stipulated in the
assembly's decrees, it added.

"What is important is how to maintain the credibility of the
reform movement after disengagement from the IMF," ISEI chairman
Bambang Soedibyo said.

The quarterly LoI is a reform commitment mechanism the
government has to submit quarterly to the IMF. If the IMF
Executive Board approves the document the multilateral agency
immediately disburses a fresh tranche of the loan, to strengthen
the country's balance of payments.

Critics of the IMF's role in Indonesia cite the LoI as the
mechanism through which the IMF has dictated its wishes with
regard to Indonesia, even though the list of reforms and the
sequencing of their implementation is drawn up largely by the
government.

"The critical problem concerning the IMF arrangement is not
the options available for the government after the end of the
current program but rather what Indonesia should do to improve
its economic growth."

Bambang said that market confidence in Indonesia's reforms
could be maintained or even increased by accelerating the pace of
reform implementation, maintaining political and security
stability, eradicating corruption and strengthening the rule of
law.

"Macroeconomic management should be strengthened through a
faster pace of structural reform in order to reinvigorate the
real (business) sector," the association added.

It noted that Indonesia's international reserves (US$34
billion) were sufficient to allow the government to immediately
repay all of its debts (over $8 billion) to the IMF.

But the association cautioned that the government should be
very careful about the consequences of such a measure in view of
the risks of a weakening of exports and external shocks that
might affect the rupiah and reverse the flow of capital.

"The government should also see to it that the ending of
special arrangements with the IMF later this year does not cause
monetary instability, especially in view of the 2004 election,"
ISEI said.

ISEI also produced a set of policy recommendations for fiscal
and monetary management and the manufacturing sector.