Mega says RI still needs IMF to restore confidence

Mega says RI still needs IMF to restore confidence

The Jakarta Post, Jakarta

While claiming that macroeconomic indicators have improved during
her first year in office, President Megawati Soekarnoputri
stressed the need to maintain the role of the International
Monetary Fund (IMF) to revive confidence in the economy.

"In this difficult transition time, we need that cooperation
(with the IMF) to cultivate trust in the macro economy and
monetary (condition)," she said on Thursday in her progress
report speech delivered on the first day of the 10-day Annual
Session of the People's Consultative Assembly (MPR).

The statement came amid mounting opposition to the IMF program
here including from Megawati confidante Kwik Kian Gie, the State
Minister of National Development Planning, and other leading
politicians who have argued that the IMF recommended-policies
often sacrifice the nation's interests.

Indonesia is currently tied with the IMF under a three-year
US$5 billion loan program. In exchange for the IMF money, the
government must implement various economic reform programs. The
IMF role here was supposed to finish by the end of this year, but
the government extended it for another year in a bid to secure a
sovereign debt rescheduling facility from the Paris Club of
creditor nations.

Megawati said that the success in obtaining the rescheduling
facility would help ease the country's debt burden and help
create fiscal stability, which in turn would also promote macro
economic growth and monetary stability.

"... the government is putting top priority on the achievement
of macro economic and monetary stability," she said, pointing out
that such a condition was crucial to revive confidence in the
economy.

Megawati made an immediate impact when she was elected as the
country's fifth president in July 2001, by mending ties with the
IMF that were strained during the 21-month government of her
predecessor Abdurrahman Wahid.

In her speech, she said that macro economic and monetary
conditions had been improving during the past 12 months, pointing
out a stronger rupiah, lower inflation, and the state budget
deficit moving within a safe limit.

Nevertheless, despite this progress, Megawati admitted that
many problems remained a threat to the economy including the
banking sector which has yet to fully recover, slow progress in
the recovery of the real sector, and huge public debt.

While exports have yet to pick up from its slump, investments
have so far failed to perform, depriving the country's ailing
economy of its main growth movers.

Foreign direct investment (FDI) approvals tumbled 42 percent
to $2.52 billion in the first six months this year from $4.31
billion a year ago, the latest data shows. Exports also posted a
6.7 percent drop during the period compared to the previous year.

Adding to the problems is the fact that the state budget
remains heavily weighed down by $134 billion in foreign and
domestic debts.

Of the total, around $66 billion comes from domestic debts, as
a consequence of bailing out the banking sector during the 1990s
financial crisis.

Covering interest payments for those debts has limited the
budget's allocation for development spending, which could have
generated economic activities to push for higher economic growth.

Other problems revolve around the slower-than-expected
progress in the sale of assets held by the Indonesian Bank
Restructuring Agency (IBRA) as well as attempts to restructure
the banking sector.

The privatization program of state-owned enterprises has so
far also failed to show encouraging signs. Of the targeted Rp 6.5
trillion in proceeds for 2002, the government had only managed to
rake in around Rp 2.2 trillion so far.