ISEI says Indonesian economy is ready to part with IMF

Dadan Wijaksana, The Jakarta Post, Jakarta

The high-profile Indonesian Economists Association (ISEI) supported calls for the termination of the current International Monetary Fund economic bailout program later this year.

ISEI chairman Bambang Sudibyo, who is also a former finance minister, said that recent positive economic data suggested the economy would be able to cope with any negative effect resulting from the absence of the IMF assistance.

"We should not be too worried about that (the IMF's departure). Our economy is more than ready to cope with the loss," he told a press conference on Wednesday.

The statement came after Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said the government would no longer extend the current IMF program when it expired later this year.

But it is still not clear whether the government will adopt another form of cooperation with the IMF, such as the post- program monitoring arrangement, under which the IMF would no longer be active in designing the country's economic reform program but would still play a monitoring role. This is meant to help instill investor confidence in the government's reform program.

But ISEI is more in favor of a complete break with the IMF program as suggested previously by high-profile figures like State Minister of National Development Planning Kwik Kian Gie and former chief economics minister Rizal Ramli.

Bambang said that positive development in the monetary and fiscal sectors should allow the economy to survive the post IMF period.

He pointed out the strong foreign exchange reserves of about $33 billion, which is more than enough to repay the country's $7 billion debt to the IMF.

He is also confident that the absence of the IMF would have little effect on the economy.

There is concern that the termination of the IMF program would cause the country to lose some $3 billion in debt restructuring facilities from the Paris Club for this year alone.

But Bambang said the government could always boost domestic revenue to fill the above financing gap.

On Wednesday, legislators discussing the 2004 state budget draft urged the government to increase the country's tax ratio to 14 percent of gross domestic product (GDP) from the current 12 percent level to help secure the country's fiscal condition for the year.

The current ratio is still much lower than the 14 percent average ratio of countries in Southeast Asia.

Bambang said that as the state budget deficit had been declining, the government was now in a position to become less dependent on foreign financing.

The budget deficit is estimated to decline to 1.8 percent of GDP this year from last year's 2.4 percent, and is projected to fall to 1 percent next year.

"Yes, there would be sudden monetary turmoil, but not to a level that the economy cannot deal with. It will be short-lived as the disruption would come in the expectation frame, not because of the imbalances in our fundamental economy."

Bambang said the government was gaining the right momentum to graduate from the IMF now that the macroeconomic position had been steadily stabilizing.

"The current climate in our macroeconomic indicators; the rupiah, inflation and Bank Indonesia's interest rate, should make it easier for the government to decide to split from the IMF program."

The rupiah is currently at an 11-month high, interest rates are declining and inflation is low.