ISEI says Indonesian economy is ready to part with IMF

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.