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.